NEW YORK, Jan 20, 2026, 05:04 EST
- Goldman Sachs stuck with its Buy rating on Microsoft and held the price target at $655, factoring in rising data-center power expenses
- Microsoft’s quarterly earnings come out Jan. 28, spotlight on Azure’s growth and AI investment
- Regulators and grid operators are stepping in to control data-center demand, sparking debate over who should foot the bill
Goldman Sachs stuck with its Buy rating on Microsoft (MSFT), holding the price target steady at $655 — a projection of where the stock could land in the next year. The bank factored in rising electricity costs linked to Microsoft’s AI expansion. Shares slipped about 1.7% in premarket trading, leaving the target roughly 42% above the last close.
The call comes just before Microsoft’s fiscal second-quarter results, set for release after the market closes on Jan. 28. Investors are keen to see if Azure’s growth can offset the rising expenses of its data centers.
Electricity is no longer just a minor issue for the cloud giants—it’s a major bottleneck. Utilities and regulators are scrambling to boost capacity quickly while avoiding higher costs for households.
Goldman ran a sensitivity test on power costs in its note. It found that a 10% rise in power expenses could cut the fiscal 2030 free-cash-flow margin by roughly 16 basis points — that’s 0.16 percentage points. Free cash flow here refers to cash remaining after capital expenditures. The bank also highlighted “take-or-pay” power purchase agreements, meaning companies must pay even if they don’t use the power.
Last week, Microsoft announced it would pay utility rates high enough to cover its own power expenses and collaborate with local utilities to boost supply for its data centers. Vice Chair Brad Smith called it “unfair and politically unrealistic” to expect the public to bear extra electricity costs for AI. The company also committed to replenishing more water than its U.S. data centers use and pledged to release water-use data by region.
https://www.reuters.com/business/microsoft-launches-data-center-initiative-limit-power-costs-water-use-2026-01-13/
PJM Interconnection is working on rule changes to address the surge in data-center demand and has floated the idea of an emergency auction to boost power supply in its market.
Not everyone’s focused on the power numbers. On Monday, Seeking Alpha contributor Rick Orford suggested “something doesn’t add up” with the stock’s recent slide, highlighting robust cloud growth.
https://seekingalpha.com/article/4860916-microsoft-something-doesnt-add-up
Microsoft reported revenue of $77.7 billion and non-GAAP earnings per share of $4.13 for the quarter ended Oct. 29. Azure and other cloud services saw a 40% jump in constant currency terms, while commercial remaining performance obligation — a key indicator of future contracted revenue — surged 51% to $392 billion. CFO Amy Hood described the results as “a strong start” to the fiscal year.
https://www.microsoft.com/en-us/investor/earnings/fy-2026-q1/press-release-webcast
Azure remains at the heart of the cloud showdown against Amazon’s AWS and Alphabet’s Google Cloud, as all three race to expand compute power for generative AI and the “copilot” tools targeting business users.
Costs can outpace revenue when firms lock in infrastructure. Switzerland’s competition watchdog has launched a preliminary probe into Microsoft’s licensing fees after complaints about steep price increases. It warned this “could warrant the opening of a formal investigation” if the concerns hold. Italy’s regulator has also started looking into Activision Blizzard’s sales tactics for “Diablo Immortal” and “Call of Duty Mobile,” flagging them as potentially “misleading and aggressive.”
https://www.reuters.com/business/swiss-competition-authority-opens-probe-into-microsoft-licensing-fees-2026-01-15/
https://www.reuters.com/sustainability/boards-policy-regulation/italy-probes-microsofts-unit-over-sale-practices-call-duty-diablo-video-games-2026-01-16/
Microsoft shares followed the broader tech sector’s swings in Europe on Monday, pressured by U.S. tariff threats and the absence of Wall Street trading due to a holiday. This volatility adds to the mounting attention ahead of earnings.
The upcoming earnings call is expected to shift focus from product updates to expenses—capital expenditures, power costs, and the pace at which AI investments convert into subscription revenue. Wall Street might peg the stock at $655, but the electric bill still needs to be covered.
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