Evercore: $25.7 billion AI increment emerges! Microsoft Corporation (MSFT.US) Azure 2026 revenue growth rate may rise to 41%

Investment bank Evercore highlighted the potential upside in revenue for Microsoft Corporation's (MSFT.US) cloud computing platform Azure, and provided some insights on the newly released Copilot Wave 3 and Microsoft 365 E7. Led by analyst Kirk Materne, the team stated, "We attempt to estimate the potential upside to Azure revenue forecasts for the 2026 calendar year based on Microsoft Corporation's capital expenditure. Our analysis inevitably includes a large number of assumptions, but the core conclusion is that, assuming capacity construction and chip delivery proceed as planned, we expect Microsoft Corporation to add approximately $25.7 billion in Azure AI revenue in the 2026 calendar year, higher than our previous estimate of $21.8 billion. While this outlook includes many assumptions, if non-AI Azure revenue growth trends stay around 16%, we believe Azure total revenue in the 2026 calendar year could grow by approximately 41% (about 4.3 percentage points higher than our previous forecast)." The analysts pointed out that while the fundamentals remain strong with Microsoft Corporation's total revenue in the second quarter of the fiscal year increasing by 15% year-over-year (with Azure revenue growing 38% providing the main impetus) the growth rate of Azure revenue has not accelerated further, capital expenditure is increasing, and there are some doubts in the market regarding Microsoft Corporation's broader AI strategy (i.e. Copilot), all of which are putting pressure on the stock price. The analysts added that Microsoft Corporation's current capacity issues are unlikely to be resolved quickly, so accelerated growth for Azure is more likely to occur in the second half of the 2026 calendar year. The analysts stated, "In our view, Azure lacks short-term catalysts, and the debate surrounding the allocation of GPUs to internal business (1P) versus Azure (3P) is causing investors to stay on the sidelines temporarily. However, with a valuation of 18.5 times GAAP EPS, the current valuation already reflects a considerable amount of market tepidity, so an acceleration in Azure revenue growth later this year, or a turning point in the Copilot narrative, could both serve as triggers for stock price appreciation." In addition, earlier this month, Microsoft Corporation released Microsoft 365 Copilot Wave 3 and Microsoft 365 E7 (known as "Frontier Suite"), which are new top-tier licensing packages aimed at organizational customers. Microsoft 365 E7 includes Microsoft 365 E5 (productivity and security), Microsoft 365 Copilot, Agent 365, and Microsoft Entra Suite. The analysts said, "Clearly, in the past few months, Copilot's attractiveness at the user level has not garnered the same level of attention as Anthropic's Cowork. However, driving adoption in the enterprise market is a long-term process, not a sprint. Microsoft Corporation's distribution capabilities and large installed user base give it the opportunity to ultimately drive widespread adoption of Copilot in many enterprises." From an investor's perspective, the analysts believe that the current challenge is the lack of usage data related to Copilot. The analysts stated, "While we understand that Microsoft Corporation is more likely to commercialize through SKU (product bundles), in the age of AI, we believe 'usage = value', so providing investors with key performance indicators (KPIs) based on Copilot usage and consumption will help demonstrate how recent adjustments to Copilot are driving wider adoption." Furthermore, the analysts noted that discussions with partners and enterprise customers show clear progress in enterprise deployment, particularly in productivity tools and developer usage scenarios, while more advanced capabilities like Agent AI are still evolving. The analysts concluded, "It is important to note that Microsoft Corporation continues to benefit from its extensive enterprise customer coverage and integrated technology stack, but overall adoption is still progressing in stages."