Loop Capital: Microsoft Corporation (MSFT.US) should have a higher premium than other software giants. Target price raised to $550.

Loop Capital analyst Yun Kim released a research report on December 23, adjusting expectations for some software companies. The analyst raised the target stock price for Microsoft Corporation (MSFT.US) from $500 to $550 and confirmed a buy rating on the stock. Kim pointed out that people's general expectations for the company's future years have been artificially lowered due to the significant capital expenditure investment required to support its generative artificial intelligence initiatives. The analyst said that Microsoft Corporation's stock price should command a much higher premium than other large software companies. In the age of artificial intelligence, capital expenditure has been a major issue. In the first half of 2023, capital expenditure for large tech companies was around $74 billion. By the third quarter of that year, the figure had risen to around $109 billion. In the first half of 2024, large tech companies spent nearly $104 billion, a 47% year-on-year increase. By the third quarter, this number had soared to $170 billion, a 56% increase from the same period the previous year. The total capital expenditure for Microsoft Corporation and Amazon.com, Inc. in the third quarter of 2024 was $42.6 billion. Alphabet maintained a level of around $13 billion per quarter, and Meta began accelerating its spending. During Microsoft Corporation's earnings conference call, CFO Amy Hood stated that capital expenditure, including financing leases, totaled $20 billion, in line with expectations, while cash expenditures for real estate, factories, and equipment were $14.9 billion. Hood told analysts, "Roughly half of our cloud and AI-related spending will continue to be on long-lived assets that will support monetization over the next 15 years or more, with the remaining cloud and AI spending primarily on servers, including CPUs and GPUs, to provide services to customers based on demand signals." She noted that free cash flow was $19.3 billion, down 7% year-on-year, reflecting the increase in capital expenditure to support cloud computing and AI products.