Analysts from BNP Paribas have released a report suggesting a major AI cloud infrastructure deal between SpaceX and Google could signal further significant upside for Microsoft (MSFT.US) and its Azure cloud computing division. According to the deal, Google will pay SpaceX $92 million per month for AI computing capacity, highlighting the continued severe shortage of AI infrastructure, particularly for cloud-based AI inference, where pricing power is shifting to large-scale cloud platform providers with schedulable resources.
Key Points from the Analysis
In a client note, BNP Paribas analyst Stefan Slowinski wrote, "While we acknowledge these agreements are intended to be short-term and executed in a severely supply-constrained environment, they still provide further evidence that demand for AI compute infrastructure remains robust." He added that if pricing strengthens upon contract renewals, it could present upside potential for Azure's growth forecasts, potentially pushing growth rates into the mid-40% range.
Slowinski also focused on whether Microsoft can sustain the efficiency gains from its schedulable Azure compute resource pool, which has driven growth above investor expectations in recent quarters, and whether this strong outperformance is sustainable. He is also considering whether the company can increase prices for longer-term Azure contracts as AI-related infrastructure deals come up for renewal, especially given the ongoing 'silicon-based inflation' affecting memory/storage chips, data center CPUs, and other AI supply chain bottlenecks.
Analyst Rating and Target
The analyst maintained a "Buy" rating on Microsoft stock with a price target of $555. With the stock closing at $403.41 on Tuesday, this target implies an optimistic 12-month outlook. Beyond the improved cloud deal prospects, Slowinski noted seeing positive signs in user feedback for both consumer and business versions of Microsoft Copilot. Given that Copilot has trailed behind platforms like OpenAI's ChatGPT, Anthropic's Claude, and Google's Gemini, any improvement is noteworthy for investors.
"We are seeing signs of improving Copilot feedback, particularly from those with Frontier access," Slowinski explained. "However, often these newer features are not immediately rolled out to the broader installed base, and enterprise deployment cycles can be relatively slow."
Potential Revaluation Window for Microsoft
If a potential SpaceX IPO successfully amplifies the market narrative around "space-based AI data center construction" and the long-term scarcity of AI compute resources, capital could flow back to established cloud leaders like Microsoft, which possesses a massive cloud platform, mature enterprise and AI model ecosystems, and proven compute scheduling capabilities.
Reports indicate SpaceX has attracted over $250 billion in investor demand for its planned record $75 billion IPO. This level of oversubscription, nearly four times the target, suggests that global risk capital's pursuit of AI compute infrastructure, commercial space ventures, and next-generation space-based data center assets is far from cooling. It indicates substantial long-term capital from sovereign wealth funds, pensions, growth funds, and active hedge funds seeking core assets for the next decade's growth story.
Broader Market Sentiment and Microsoft's Fundamentals
Despite recent pullbacks in AI supply chain stocks, the prevailing view on Wall Street is not that the AI super-cycle is ending. Instead, many large institutions are raising their benchmark index targets, citing reasons tied to AI capital expenditure waves, hot AI infrastructure build-out, and AI-driven profit expansion, viewing the current decline as a healthy correction.
Fundamentally, Microsoft's valuation is no longer supported by AI narrative alone. The AI-driven growth trajectory of its Azure platform is accelerating. For its fiscal 2026 third quarter, revenue was approximately $82.9 billion, up 18% year-over-year, with operating income of $38.4 billion, up 20%. Microsoft Cloud revenue reached $54.5 billion, a 29% increase, and commercial remaining performance obligation grew 99% to $627 billion. Azure and other cloud services revenue grew 40%. CEO Satya Nadella also disclosed that Microsoft's AI-related business has an annualized revenue run rate exceeding $37 billion, up 123%.
For Wall Street, this data indicates Azure is moving beyond the narrative of a costly AI arms race and is beginning to form a revenue-generating AI loop encompassing cloud AI compute infrastructure, accelerated enterprise AI agent deployment, Copilot, the AI developer ecosystem, and model services. Coupled with the potential for cloud contract renewal price increases, there is room for further upward revisions to both the revenue expectations and valuation multiples for Microsoft's cloud business.
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