Microsoft’s (MSFT) 2026 was bumpy to say the least.
Shares are up around 3.6% year-to-date and nearly 13% over the past three months, according to Seeking Alpha. However, those gains hide what’s been a bruising spring selloff and a relatively strong August rebound.
That said, Bank of America has now revamped its Microsoft stock target, suggesting the year’s biggest move might still lie ahead.
Microsoft wrapped up its fiscal 2026 with quarterly sales of $90 billion, up 18%, while Azure grew 43%. At the same time, Microsoft 365 Copilot also shot up from 20 million paid seats earlier in the year to more than 30 million, solidifying its case as a standalone growth engine.
Still, the company is preparing to unveil its Maia 300 AI chip as early as September, according to Reuters. The company has discussed securing capacity for over 300,000 chips in 2027, with longer-term ambitions above one million.
Yet Microsoft isn’t abandoning Nvidia, as its first production Vera Rubin systems arrived in August.
Against that growing AI footprint, BofA’s reset sits above Wall Street’s average and perhaps the most intriguing bit was what compelled the bank that Microsoft deserves a richer valuation.
BofA sees Azure execution unlocking $600 valuation
Bank of America analyst Tal Liani bumped his Microsoft price target to $600 from $500 and reiterated a Buy rating. Against a Sept. 1 reference price of $507.29, the target points to a sizeable 18.3% upside.
For perspective, TipRanks rates BofA’s Tal Liani as a top analyst, with a 100% success rate across seven ratings on Microsoft, producing an impressive 24.43% average return.
The big change is that BofA is now applying a far richer 28-times forecasted calendar-2027 earnings, up substantially from 24 times previously and above its 18-to-25-times software peer range.
Essentially, BofA sees far less execution risk around Microsoft’s massive AI investment.
For some color, Azure was on fire in its recent quarter, posting 39% growth in fiscal Q3 to 43% in Q4, with management guiding to 45% in Q1 2027, soaring above Wall Street’s initial 40.6% expectation.
Related: JPMorgan set a serious Microsoft stock price target for 2027
As AI demand still comfortably exceeds available capacity, deploying infrastructure more quickly converts constrained demand into sales instead of merely adding idle assets. BofA consequently models Azure constant-currency growth rising from 39.9% in fiscal 2026 to 41.8% in 2027.
Moreover, the visibility behind that forecast is also equally important. Remaining performance obligations jumped 84% to $678 billion, which creates a substantial contracted-revenue reservoir.
On top of that, paid Microsoft 365 Copilot seats blew past 30 million, while quarterly net additions more than doubled. Collectively, those metrics show Microsoft is efficiently monetizing AI across both levels of its stack, with Azure capturing infrastructure consumption and Copilot capturing higher-value application demand.
Still, 28 times earnings demand much faster cloud growth.
BofA forecasts fiscal-2027 sales jumping 17.1% to $388.5 billion, but EPS increasing only 8.9%, while capital spending reaches $205.6 billion and free cash flow falls 51.7% to $32.4 billion.
Hence, the $600 case assumes the incredible investment drag will produce durable growth and increasingly visible returns, thereby justifying the current premium.
Microsoft’s AI stack turns model choice into margin defense
BofA’s second reason for bumping its MSFT stock target is that the tech giant doesn’t need to build the best AI model to remain a juggernaut in the business.
Copilot acts as a control center, connecting various AI models to a company’s data and tools, verifying their answers, and limiting what they can do. The best model for each task is selected based on cost, speed, quality, and security.
Microsoft’s competitive edge is its walled-garden approach, where customers can stay within Copilot and efficiently switch between its models, OpenAI models, and other options. Moreover, it can make money from Copilot subscriptions and Azure’s computing power required to run those models.
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Moreover, Microsoft can save high costs by deploying powerful, expensive models for hard tasks while assigning simpler work to smaller, cheaper models.
According to Microsoft, as reported by FirstPost, MAI-Code-1-Flash performs as well as GPT-5.6 on common Excel tasks at a lower cost. Also, its newer version uses 25% fewer tokens and costs one-quarter as much as the previous model.
On top of that, MAI-Cyber-1-Flash could potentially handle up to 90% of the tasks performed by Microsoft’s security system, delivering similar results at 50% of the cost of leading models. Other Microsoft models have reduced GPU costs by up to 84% in PowerPoint and 89% in Dynamics 365.
Additionally, Microsoft is making its AI infrastructure much more efficient. Copilot can process four times as much work, while Microsoft cut the time required to activate new GPUs by nearly 50%. Its Maia 200 chip also offers 40% better performance per watt.
Microsoft’s $600 target is bullish, but not a blank check
BofA’s $600 target currently sits above Wall Street’s overall view but seems restrained within the most bullish group. According to TipRanks, the consensus is $568.31, based on 33 analysts. BofA is therefore 6% above consensus, yet 14% below the tracked high.
BofA matches Morgan Stanley and Citi at $600 but is behind JPMorgan at $625, Goldman Sachs at $655, Bernstein at $660, and Wells Fargo at $700. Those six peer target an average of $640, placing BofA $40 below that bullish subgroup.
Investors shouldn’t confuse that support with low risk, though.
BofA’s valuation assumes Microsoft deserves 28 times calendar-2027 earnings even with CapEx and free cash flow woes. However, that multiple might contract if Azure growth slows, Copilot adoption is sluggish, or new data centers take longer to generate sales.
The key tests are Azure meeting its 45% near-term growth guidance, ongoing Copilot adoption, conversion of the $678 billion backlog, and an eventual free cash flow recovery.
If those indicators hold, especially over the long-term, $600 looks clearly defensible.
More on Microsoft & its stock:
- History of Microsoft: Company timeline & facts
- Is Microsoft a good long-term investment in 2026?
- Does Microsoft pay a dividend? Its yield and payout explained
- Where is Microsoft’s headquarters? Inside the tech giant’s corporate campus