Morgan Stanley Reiterates Overweight on Microsoft (MSFT), Cites AI Momentum

Microsoft Corporation (NASDAQ:MSFT) is one of the Buzzing AI Stocks on Wall Street. On September 26, Morgan Stanley named the stock as a “Top Pick” and raised its price target to $625 per share from $582.

“Confidence in a path to shedding those weights and a broadening set of growth drivers elevates MSFT to Top Pick.”

The firm noted that even though the pace of adoption and monetization is slow, Microsoft stands to benefit from the AI boom. Its robust ties to the industry and its enterprise solutions have had the firm bullish on the stock.

Morgan Stanley particularly pointed out to Azure cloud computing platform’s growth amid an enterprise spending boom. One of the surveys conducted by the firm revealed how 49% of CIOs quoted Azure to be the likely top IT budget share gainer over the next three years.

The company’s cloud is also likely to benefit from AI-industry tailwinds.

“With its integration of the OpenAI model family, Microsoft has already gained a large group of new commercial applications. With AI workloads set to become a larger portion of cloud spend and driving an increase in the percentage of workloads in the cloud higher, Azure is well positioned to benefit.”

The firm believes that Microsoft has “the clearest and highest probability positive risk/reward in the space.”

“The strong positioning of Microsoft for multiple secular growth drivers – GenAI (polls #1 as the biggest wallet share gainer), migration of Enterprise workloads to the Public Cloud (polls #1 as the biggest wallet share gainer), Cyber-security (the largest vendor in the space with >$40 billion in revenues) and across all these an ongoing push towards consolidation of spend with fewer vendors – enables an under-appreciated durability of high-teens total return profile, currently under-priced at a <26x GAAP CY27 EPS multiple compared to the >$50Bn large-cap software average at 32x non-GAAP EPS. Sustained momentum on the top-line, better appreciation of the breadth of growth drivers and resolution of uncertainty around the OpenAI relationship should drive shares toward our upwardly revised $625 price target. Reiterate Overweight, making Microsoft our Top Pick in large-cap software given the clearest and highest probability positive risk/reward in the space.”

Microsoft Corporation (NASDAQ:MSFT) provides AI-powered cloud, productivity, and business solutions, focusing on efficiency, security, and AI advancements.

While we acknowledge the potential of MSFT as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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