By Britney Nguyen
The sustaining growth of the company’s AI revenue and cloud platform Azure are not fully priced into the stock, Oppenheimer analysts say
Microsoft Corp.’s stock was upgraded on Wednesday by analysts who expect investor interest in the company’s artificial-intelligence revenue to only increase as the company’s cloud business continues to grow.
As the growth of Microsoft’s (MSFT) Azure cloud platform “remains strong,” that not only supports the stock’s valuation but gives the company opportunity to deliver upside due to the fast rate of expansion, according to the Oppenheimer analysts. Meanwhile, they see investors embracing Microsoft “as one of the long-term AI winners in software.”
The Oppenheimer team upgraded Microsoft’s stock to outperform and set a price target of $600, about 20% above Tuesday’s close.
According to the analysts, Microsoft’s AI business is experiencing “sustaining robust growth” that isn’t fully reflected in the stock price. Also not reflected is the potential for Microsoft’s Azure cloud-computing business to post a reaccceration of growth in fiscal 2026, they said.
“Further, Microsoft is one of only a few vendors in the software industry capable of delivering a Rule of 60 business profile and at unprecedented scale, which we think lends good support to premium multiples,” the analysts said. The Rule of 60 refers to whether the combination of a company’s rate of revenue growth and its margin on earnings before interest, taxes, depreciation and amortization adds up to 60.
The analysts said Microsoft’s shares are their “top large-cap idea” for investors in AI and cloud companies “and should be a core holding” for those looking to own shares over the long run.
However, they said a key risk for Microsoft could lie with its Copilot AI offerings. The value proposition and use cases for its Copilot AI assistant so far “have been underwhelming,” the analysts said, referencing their own research. If enterprise software customers start thinking that they’re investing in AI technology that isn’t available yet, AI adoption could decline, they said.
“This could lead to more constrained deployments and a significant slowdown in spending growth for [Microsoft’s] AI technology,” the analysts said, adding that Azure’s usage and financial growth would be affected, potentially eroding Microsoft’s credit “as a perceived AI winner.”
Another risk to keep in mind is that Microsoft could also be more cautious about its guidance for fiscal 2026, the analysts said, given macroeconomic uncertainty.
According to the Oppenheimer team, “investors are underestimating the potential for Microsoft’s AI business to drive durable consumption growth for Azure and scale fast in the agentic AI era” because of the lack of excitement around the first iteration of Copilot. But that view could be “too conservative” if investors are assuming that Copilot Studio, which allows users to build customizable AI agents, and Microsoft’s other AI tools “will have a similar early life-cycle outcome as Copilot.”
Overall, in Oppenheimer’s view, the tech giant “is a formidable and strategically positioned AI supplier in software” and has a clear path toward reaccelerating growth for its commercial offerings and Azure platform as adoption grows for AI agents that can perform tasks autonomously.
-Britney Nguyen
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07-09-25 2229ET
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