Microsoft (MSFT) Named Top Large-Cap Software Pick by Morgan Stanley

Microsoft Corporation (NASDAQ:MSFT) ranks among the best AI stocks to buy according to analysts. On December 17, Morgan Stanley retained Microsoft Corporation (NASDAQ:MSFT) as its top pick in large-cap software, citing sustained demand across its divisions and strong prospects for operating margin growth. Analyst Keith Weiss maintained a Buy rating and a $650 price target for the company’s shares.

Meetings with Microsoft Corporation (NASDAQ:MSFT) executives, according to Weiss, left the firm “with conviction on robust demand translating to durable mid-teens top-line growth and increased confidence in ROI contributing to continued operating margin expansion.”

According to Morgan Stanley, Azure AI’s gross margins, which do not include OpenAI’s revenue share, may currently be around 20%. By FY29, these may rise to 30% and potentially surpass 40%, suggesting “very significant levels of upside to our model in the coming years.”

The firm further stated that this upside is supported by the new Capex-Implied approach for Azure estimations, which takes into account interactions with Microsoft Corporation (NASDAQ:MSFT) leadership that attest to faster bookings, RPO, and product adoption.

Additionally, Morgan Stanley highlighted the attractive returns on AI investments, pointing out that “Azure AI margins already positive and tremendous focus on driving continued efficiency.”

Microsoft Corporation (NASDAQ:MSFT) develops and sells a wide range of software, cloud services, devices, and business solutions, serving both individual users and enterprise customers worldwide.

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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Disclosure: None. This article is originally published at Insider Monkey.