Oppenheimer expects Microsoft stock to rise 20%. Why does he think they are undervalued?

The current price of Microsoft shares does not fully reflect the company's potential in the field of artificial intelligence, Oppenheimer believes. The investment bank upgraded the company's rating from neutral and recommends buying them. Microsoft shares have risen almost 20% since the beginning of the year, outperforming the Nasdaq 100 index. Oppenheimer analyst sees the growth driver in the company's strong position in the AI market and in the rapid development of the Azure cloud platform, but warns of the risks that corporate customers will change their minds about spending money on software that is not yet available.

Oppenheimer analyst Brian Schwartz upgraded Microsoft's stock from Neutral to Outperform (equivalent to a Buy recommendation), reports CNBC. Schwartz set his target price for the stock at $600 - suggesting a potential upside of 20% from the closing price on July 8. 

Microsoft shares were up 1.4% in trading on July 9. They jumped 40% from their April low. Since the beginning of the year, they have gained almost 20%, significantly outperforming the Nasdaq 100 index, which added 8%.

Microsoft's high growth rate in its AI business is not yet fully priced into the stock, Schwartz said, as is the possible acceleration of growth in the company's Azure cloud platform in fiscal 2026.

"Investor attention to Microsoft's AI revenue growth will only intensify as the company's Azure cloud platform continues to perform strongly, providing not only valuation support (similar to how AWS supports Amazon's valuation) but also additional growth potential. In addition, the rapid scaling of this area creates additional growth potential, and investors perceive Microsoft as one of the long-term AI leaders in the software segment," the analyst said.

The analyst also noted that investors may be underestimating the full scope of Microsoft's ability to monetize AI, and pointed to the company's cloud segments as a way to do so.

"Investors are underestimating the potential for Microsoft's AI business to drive sustained growth in Azure consumption and scale rapidly in the age of agent-based AI, given how weak the value proposition and use cases for Copilot (Microsoft's AI assistant) have been," Schwartz said.

The analyst warned that Microsoft's AI development comes with risks - especially if the company's enterprise customers start to see their AI spending as an investment in software that isn't ready and can't be used yet.

"This development will impact Azure usage and financial results, and will reduce the credibility that Microsoft now receives in multiples as the supposed leader in AI," Schwartz said.

Most analysts who follow Microsoft are optimistic: according to data from MarketWatch, 59 of 65 analysts recommend the stock as a Buy (Buy and Overweight), and only six recommend holding. The average stock price target suggests upside potential of about 6%.

This article was AI-translated and verified by a human editor