Morgan Stanley Raises Microsoft Price Target to $582

Morgan Stanley analyst Keith Weiss raised the price target on Microsoft (NASDAQ: MSFT) to $582 (from $530) while maintaining an Overweight rating.

“Margins Proving More Durable than Feared. Microsoft ended the year with FY25 operating margins at 45.6%, up 100 bps YoY, and have expanded operating margins by 350 bps over the past three years.

Despite the aggressive ramp in capex and increasing contribution of Cloud to the overall revenue mix, gross margins today are actually 100 bps ahead of levels seen in FY20.

There are multiple components of this improving margin equation including: 1) while mixing down with lower-margin business like Azure, the margins within these businesses are improving as Microsoft finds ways to run them more efficiently (see the 90% token growth comment above); 2) extending the useful life of the infrastructure given an expansive portfolio of solutions with varying resource needs; and 3) optimizing lower-growth areas to fund the higher-growth portions of the portfolio – More Personal Computing revenues grew 9% YoY, while operating income grew 33% YoY.

With headcount roughly flat exiting FY25 and management guiding to flat operating margins in FY26, this trend looks poised to continue.

With Productivity and Business Processes growing 14% cc and Intelligent Cloud growing 25% cc, we are likely far from seeing a ‘fully optimized’ Microsoft.”

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