Not long ago, Microsoft looked like one of Big Tech’s laggards. Its shares were down more than 20% for the year heading into its late July earnings report.
Then Azure grew 43%, and the stock surged 9% the next day.
Analysts are now scrambling to catch up. Ahead of the company’s next report, a string of Wall Street firms, including TD Cowen, Mizuho and Citi, raised their price targets, and UBS made the biggest jump of the group.
Also read: Morgan Stanley finds a new twist in Microsoft’s AI story
UBS raises Microsoft stock target from $525 to $675
UBS raised its Microsoft price target to $675 from $525 and kept a Buy rating. Analyst Karl Kierstead noted that the shares have rallied 39% since the June quarter report and returned 30% over the past six months, leaving the stock near its 52-week high.
UBS made the call ahead of the company’s fiscal first-quarter report, due Oct. 28, according to Investing.com.
UBS admits the trade is getting crowded. It called Microsoft a “consensus long position,” with investors now expecting more from Azure and Microsoft 365. Still, the firm said “the fundamentals support those higher expectations” and argued the stock’s valuation at 23 times calendar 2027 earnings “is not stretched.”
Azure is doing the heavy lifting. The cloud business grew 43% in the June quarter and crossed $100 billion in annualized revenue, and management guided for about 45% growth in the September quarter. Revenue in the broader Intelligent Cloud segment rose 32% to $39.3 billion, as reported by TheStreet.
Demand is still running ahead of supply. Microsoft said “customer demand for Azure remained higher than available capacity,” while its commercial backlog jumped 84% to $678 billion.
Excluding OpenAI, that backlog still grew 25%, and Microsoft 365 Copilot now has well over 30 million paid seats.
UBS is not alone in bullish Microsoft view
Other firms are lining up behind the same story.
TD Cowen raised its target to $625 from $540 and sees the potential for a “higher than normal” Azure beat, pointing to third-party data that screened as the strongest in history, a full quarter of its Fairwater data center, and a bullish read on OpenAI’s growth.
The upgrades kept coming from there. Mizuho lifted its target to $600 from $510 after channel checks it called “very healthy overall,” while Citi raised its target to $636 from $600, citing survey and reseller checks that point to faster growth in productivity software and public cloud. Citi also ranks Microsoft among the best-positioned AI vendors.
Melius Research went further. Analyst Ben Reitzes upgraded the stock to Buy and raised his target to $665 from $465, arguing that rising demand for AI security and governance could give Microsoft a new edge as companies juggle many AI models and agents. Melius expects Azure growth above 50% by the fourth quarter of fiscal 2027.
Morgan Stanley is sticking with its Overweight rating and $600 target. Its latest survey of chief information officers found 30% named Microsoft as the vendor most likely to capture the largest share of generative AI spending this year, up from 27% the prior quarter.
The firm’s bull case for the stock is $795, while its bear case sits at $250, TheStreet reported.
The AI bill keeps growing
The growth isn’t cheap. Microsoft expects capital spending of about $175 billion in calendar 2026, and Morgan Stanley analyst Adam Wood’s model shows gross margin slipping to 65.7% this fiscal year from 67.9%.
Still, Wood argued that Microsoft “has the potential to monetize the same AI workflow at multiple points across its stack.”
Customers are also still figuring out what they get for their money. In Morgan Stanley’s survey, 42% of chief information officers said they can’t yet measure returns on their AI token spending, and 28% said returns are running below what they spend.
Only 13% said returns are ahead, while 43% already have controls on token spending.
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The broader buildout is leaning on borrowed money. Fed Chair Kevin Warsh said in September that hyperscalers raising funds in the bond market partly explain the rise in Treasury yields, adding that “the competition for capital is real.”
Morgan Stanley expects AI-related global debt to approach $570 billion in 2026, according to Fortune.
Big investors are already heavily positioned in tech.
Bank of America’s October fund manager survey found technology allocations at their highest level since August 2020, and managers named an AI bubble as one of their two biggest risks. Long semiconductors ranked as the most crowded trade.
What to watch during Microsoft’s Oct. 28 earnings report
The next test is Microsoft’s Q1 FY2027 report on Oct. 28.
UBS has already rebuilt its Microsoft model to reflect a reporting reclassification the company announced last month. Yorkville Ives also started coverage with an Outperform rating and a $615 target, citing Microsoft’s ability to make money from enterprise AI.
Retail traders seem less excited than Wall Street. Sentiment on Stocktwits sat in “bearish” territory, even as the shares were up more than 10% for the year. On the business side, UMass Memorial Health announced a multi-year plan to move its data platform and electronic health record to Azure, Stocktwits reported.
Higher interest rates could also matter less for Microsoft than for smaller players. Goldman Sachs said cash-rich AI hyperscalers have shown little sensitivity to higher funding costs so far, while housing and small businesses feel the squeeze first.
For now, Wall Street is betting Azure keeps doing the talking.
Related: Meta and Microsoft just sent employees a memo about Anthropic