Bernstein believes that the gradual deployment of Microsoft's new computing power is expected to accelerate both Azure and Microsoft 365 commercial cloud businesses, thereby improving market perceptions of the return on investment in AI, but the timing remains uncertain.
A key change is the potential narrowing gap between revenue and capital expenditure growth rates. To reach this inflection point, capital expenditure growth needs to decline further, while Azure revenue needs to continue accelerating. Microsoft 365 commercial cloud growth is expected to approach or enter the 20% range; however, this still depends on assumptions regarding computing power release, pricing, and monetization lags. Even after factoring in hardware price increases, the firm cannot confirm that the inflection point has occurred, and whether it will be in fiscal year 2027 or 2028 remains uncertain.
Another change is Copilot monetization. The firm believes that Microsoft's distribution channels, enterprise data, and integrated workflow platform will help convert AI capabilities into revenue.
