Morgan Stanley Cuts Microsoft’s PT from $530 to $475

Morgan Stanley analyst Keith Weiss lowered on April 16, 2025, Microsoft’s price target to $475 (from $530). The ‘Overweight’ rating remained unchanged.

“Investor sentiment remains negative as a “wall of worry” around macro and micro demand impacts dominates the conversation and negative revisions loom on the horizon.

Even post our proactive cuts to our estimates, the valuation looks attractive at 25X GAAP CY26 EPS, for a long-term GenAI winner.

Key Takeaways

• High levels of macro uncertainty evident in surveys and checks lead us to lower our estimates
• Azure estimates lowered to 31%/30% cc F3Q/F4Q (from 31.5%/32% cc) removing the expectation for a F2H acceleration which is in line with buy-side expectations
• M365 Commercial Cloud estimate moves to 13.5%/12% cc F3Q/F4Q (from 14%/13% cc) on our second consecutive cut reflecting macro uncertainty and mixed checks
• Near term demand headwinds already dominate investor conversation but are not fully reflected in consensus, as we move -1.4%/-5.7% below on FY25/FY26 EPS
• At 25x CY26 GAAP EPS, MSFT shares reflect the negative estimate revision path and the long term risk-reward skews more positive.

Estimate Revision Path May Continue to Be Lower Near-Term…

Microsoft’s share performance is lagging the group as sentiment skews negative as investors wrestle with slowing business momentum in key segments such as Azure and M365 (MSFT -8% 1-Year performance vs.

Large Cap Software +19%).

We share some of these investors’ concerns, seeing Microsoft impacted near term by the macro uncertainty with partners signaling a “wait-and-see” approach on large transformational deals and also impacted by internal execution in the partner organization and Copilot product ramp, which we reflected in our initial estimate cuts (see [2Q24 CIO Survey Takeaways]) and our second estimate cuts today (see [Adjusting for the Tariff Risk – What’s Priced In?]).

In particular,

1) Azure growth appears to downtick, as partners suggest impacts to bookings and consumption, which leads us to remove an expectation for a F2H Azure acceleration as we move to 31% cc F3Q Azure growth and look for a 100bps deceleration from those levels in F4Q;

2) Microsoft 365 Copilot performance remains subdued according to partners, as adoption remains tepid and further hampered by deal cycle elongation in this macro environment, which leads us to further lower our F3Q M365 Commercial Cloud estimate to 13.5%.”

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