Microsoft (MSFT) Remains Top AI Stock Pick, Morgan Stanley Predicts Significant Growth
Morgan Stanley reaffirmed its bullish stance on Microsoft Corporation (NASDAQ:MSFT) on December 17, naming it the firm’s top pick among large-cap software companies. The upgrade comes amid sustained demand for Microsoft’s diverse product portfolio and optimistic projections for future operating margin expansion, signaling continued confidence in the tech giant’s AI-driven future.
Analyst Boosts Price Target to $650
Analyst Keith Weiss maintained a “Buy” rating for Microsoft shares, accompanied by a price target of $650. This assessment reflects a strong belief in the company’s ability to capitalize on the burgeoning artificial intelligence market.
Robust Demand Fuels Optimism
Meetings with Microsoft executives, according to Weiss, solidified the firm’s conviction that “robust demand [is] translating to durable mid-teens top-line growth and increased confidence in ROI contributing to continued operating margin expansion.” This positive outlook suggests that Microsoft is well-positioned to deliver consistent revenue growth and improved profitability.
Azure AI Poised for Substantial Margin Gains
Morgan Stanley’s analysis indicates significant potential for growth in Azure AI’s gross margins. Currently estimated around 20% – excluding revenue share with OpenAI – these margins are projected to reach 30% by fiscal year 2029, with the possibility of exceeding 40%. This represents “very significant levels of upside to our model in the coming years,” according to the report.
New Estimation Approach Highlights Accelerated Growth
The firm’s optimistic forecast is further supported by a new Capex-Implied approach to Azure estimations. This methodology, informed by direct interactions with Microsoft leadership, points to faster bookings, RPO (remaining performance obligation), and product adoption rates.
Efficiency and Returns Drive AI Investment Success
Morgan Stanley also highlighted the positive returns already being generated by Microsoft’s AI investments. One analyst noted that “Azure AI margins [are] already positive and [there is] tremendous focus on driving continued efficiency.” This demonstrates Microsoft’s ability to effectively monetize its AI initiatives.
Microsoft’s Broad Market Reach
Microsoft Corporation develops and markets a comprehensive suite of software, cloud services, devices, and business solutions, serving a global customer base encompassing both individual consumers and large enterprises. The company’s diverse offerings position it as a key player in the evolving technology landscape.
Alternative AI Investments Offer Higher Potential
While acknowledging Microsoft’s investment potential, the analysis suggests that other AI stocks may offer greater upside and reduced downside risk. Investors seeking a particularly undervalued AI opportunity, potentially benefiting from shifts in trade policy, are directed to a complimentary report detailing the best short-term AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
