"Switzerland" in the cloud market: Morgan Stanley expects Microsoft shares to rise 22%

Morgan Stanley has raised its target price on Microsoft shares and called them its "top pick": the bank expects the company's market value to grow by another 22%. The analyst believes that the main reason for the growth of Microsoft's quotations will be its Azure cloud platform, which benefits from increased corporate spending and growing demand for AI services. Most Wall Street analysts share this optimism, but investors have the company as the most unpopular of the "Magnificent Seven" in the current quarter.

Morgan Stanley analyst Keith Weiss raised his target price on Microsoft shares from $582 to $625 and reiterated an Overweight rating ("above market", equivalent to a buy recommendation), CNBC reports. Weiss' new target implies an increase in the company's market value by another 22% from the closing price on Friday, September 26.

Morgan Stanley believes that while Microsoft isn't moving as fast as it should in an effort to meet growing demand amid the AI boom, it is still well positioned to show strong growth - both through its enterprise solutions and its close ties to the AI industry.

Morgan Stanley considers the cloud platform Azure to be the main driver of growth in the company's shares. According to a survey of IT managers of large companies, almost half of them named Azure as the main candidate for increasing its share in corporate budgets in the next three years. In the last quarter, Azure revenue has already grown 39% in constant currency on a year-over-year basis, the bank recalled.

An additional factor in Azure's growth has been the integration of OpenAI models, which has already brought Microsoft a number of new commercial applications, Morgan Stanley noted. Many developers of corporate and Internet software have integrated their solutions with ChatGPT artificial intelligence, which strengthens the demand for Microsoft's cloud services, the bank said.

"With the growing share of AI workloads in overall cloud spending and increasing percentage of workloads, Azure is in a favorable position," Weiss said in a note cited by CNBC. The analyst added that unlike Amazon, Microsoft is able to serve a wider range of customers. Microsoft acts "as Switzerland" in the cloud market and does not compete with its customers as Amazon does in retail, healthcare, logistics, entertainment and other areas. This independence makes Microsoft a more preferred partner in the cloud market, the analyst believes.

At the end of trading on September 26, Microsoft shares rose almost 1% to $511.5. Since the beginning of the year, the market value of the company in plus by more than 21%. For comparison: the main U.S. stock index S&P 500 for the same period added about 13%.

At the same time, Microsoft turned out to be the most unpopular stock in the "Magnificent Seven" this quarter. Its securities were virtually unchanged in price compared to the summer, when the company reported impressive results and gave a confident forecast for Azure revenue.

Morgan Stanley's opinion coincides with the assessment of most Wall Street analysts tracking the company's stock dynamics: 97% advise investors to buy the securities (Buy and Overweight ratings), MarketWatch shows. The rest are neutral with Hold ratings, and none advise selling.

The consensus target price of $625.2 implies the market value of the Magnificent Seven player is up another more than 20% from Friday's close.

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