Morgan Stanley Raises Microsoft’s Price Target to $482

Morgan Stanley analyst Keith Weiss raised on May 22, 2025, Microsoft’s price target to $482 (from $475). The ‘Overweight’ rating remained unchanged.

“What Do We Know About OpenAl?

Impacts to MSFT stemming from OpenAl’s rapid growth, impressive scaling and valuation remain underappreciated by investors.

Our analysis highlights conservatism in our Azure forecasts, supports a significant EPS acceleration story in FY27, and underscores the attractive risk/reward at MSFT. OW

Getting Closer to the Attractive Yield on Investments

In this note, the Morgan Stanley Equity, Global Valuation, Accounting & Tax (GVAT) and US Enterprise Software teams dig into

1) the equity method accounting implications for Microsoft as it navigates its evolving partnership with OpenAl,

2) the conservatism in and upside potential of our Azure Al (and Azure) estimates in our model, and

3) the underappreciated EPS acceleration on-the-come, as well as the overlooked true value of Microsoft’s equity investment in OpenAl.

While investors are debating the “Return on Investment” of rising capital expenditures, we see the yields on Microsoft’s investments in Generative Al becoming increasingly apparent, both in terms of direct monetization and driving further IT wallet share gains for the broader portfolio.

This prime position for the upcoming GenAl innovation cycle matched with solid execution is driving an acceleration in the Azure business, while best-in-class expense discipline well supports our forecast of a mid teens EPS CAGR.

Shares trading at 28X our CY26 GAAP EPS (a 2.0X PEG) fail to reflect Microsoft’s strong positioning and durable EPS growth potential, keeping us Overweight MSFT.

1) Equity Method Accounting Implications for an Evolving Partnership

Microsoft’s OpenAl investments are recognized at cost as investments are made; the investment subsequently decreases for Microsoft’s proportional share of OpenAl losses, which are reported in net income.

OpenAls losses will continue to burden Microsoft’s EPS until it achieves profitability or it reaches the $13B cap (overall value of the investment).

As the partnership evolves, the accounting for transactions between Microsoft and OpenAl is likely to change.

2) Azure Al Poised for Upside on the Back of Rapid OpenAl Growth

Given OpenAl’s rapid growth, we see upside to our Azure Al estimates, which corroborates the upside we highlighted based on our capex implied Azure Al analysis and increases our conviction in a sustained Azure acceleration, In our forecast, OpenAis growth explains 49% of Azure Al’s growth in CY25 and 100% + of Azure Als growth in CY26, suggesting further upside to next year’s Azure Al estimates not yet reflected in our model.

Put differently, keeping our OpenAl related revenue assumptions fixed, if the ‘Other’ portion of Azure Al revenue grew 50% in CY26e (vs. 129% in CY25e) it would drive overall Azure revenue to sustain -35% YoY growth in CY26, well ahead of our current 27.5% YoY growth estimate.

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