BNP Paribas gives Microsoft Corporation (MSFT.US) a "Buy" rating: Azure price increases will gradually take effect with renewals, and a deal with SpaceX may be announced soon.

Investment institution BNP Paribas said on Monday that after meeting with Microsoft Corporation (MSFT.US) executives, it believes Microsoft Corporation still has room to raise Azure prices over the long term. BNP Paribas analyst Stefan Slowinski said Microsoft Corporation executives acknowledged that Azure prices are rising, but added that the company will not tear up existing contracts and will only raise prices after contracts expire. Slowinski has a Buy rating on Microsoft Corporation with a target price of $549. "Instead, pricing will reset upon renewal, meaning any Azure pricing benefit will gradually feed into results rather than delivering a substantial step-function jump to Azure growth in the near term," Slowinski wrote in a note to clients. "Importantly, Microsoft Corporation also reiterated that its recent Azure strength is not being driven by pricing, and that fleet-level efficiency gains and continued capacity ramp remain the most important growth DRIVEs. This gives us comfort Azure growth accelerating to the mid-40% range was achieved before Microsoft Corporation had yet seen any material impact from pricing." Beyond pricing, Slowinski also noted that Microsoft Corporation pushed back somewhat on a recent report saying the company plans to increase data center capacity to 38 gigawatts by 2032. The topic of a potential cloud computing deal with SpaceX (SPCX.US) was also mentioned, partly because of recent comments by Nebius (NBIS.US) CEO Arkady Volozh, who hinted that such a deal exists. (SpaceX recently disclosed that it has signed a new computing power customer expected to spend about $1 billion per month starting in December.) "On this, the company declined to comment on any specific vendor, but reiterated that it is still continuously looking for incremental compute because it remains in catch-up mode. Microsoft Corporation also acknowledged that in the current environment, it is difficult to find immediate access to near-term capacity, especially infrastructure that meets Microsoft Corporation's specifications," Slowinski added. "So, while there was no confirmation of a SpaceX relationship, we would not be surprised if there is a possible announcement in the future." In addition, Microsoft Corporation executives provided further details on the agreement with OpenAI. Slowinski said the tech giant confirmed the $38 billion revenue-sharing cap, but that OpenAI's revenue share was not the source of its recent Azure outperformance, "and indicated that if it becomes an important upside DRIVE, the company would explicitly call out that contribution."