Microsoft's Azure Growth Could Get Boost From Renewing Contracts and SpaceX Deal

Analysts at BNP Paribas have shed light on what could drive Microsoft's stock price upward, despite its recent Azure growth acceleration.

According to Stefan Slowinski, a BNP Paribas analyst, existing contracts for Microsoft's Azure cloud computing service will not be rewritten; instead, pricing will be reset upon renewal. This means that any benefit from higher Azure pricing should 'feather into results gradually' rather than cause a sudden increase in growth.

Slowinski notes that Microsoft executives acknowledged this shift in pricing strategy, attributing recent acceleration to fleet-level efficiency improvements and continued capacity additions, not pricing.

The analyst maintains a Buy rating on Microsoft with a price target of $549. Slowinski also highlighted Microsoft's ongoing need for more computing capacity, which could be met through a potential deal with SpaceX. Although Microsoft declined to confirm any relationship, Slowinski suggests that 'we would not be surprised if there is a potential future announcement.'

The bigger near-term signal, according to Slowinski, is Azure pricing and its impact on revenue. Investors should keep an eye on renewal cycles, cloud growth, and whether higher prices begin adding to revenue without hurting demand.