TD Cowen Reiterates Buy on Microsoft, $540 Price Target

TD Cowen analyst Derrick Wood reiterated a Buy rating and $540.00 price target on Microsoft (NASDAQ: MSFT).

“We hosted Mary Grekstas (IR) for virtual investor meetings.

Key Takes Azure: While MSFT expects to be capacity-constrained through at least the end of CY26, more rigorous focus on efficiency gains (i.e., higher token throughput, reducing stranded power, faster kernel startups) has helped free up more compute availability, and MSFT is allocating more of this to Azure workloads, supporting growth acceleration in 2HCY26.

Ramping 2GW of Fairwater capacity (an ongoing effort) in a quicker fashion has also helped.

Building capacity for Anthropic ($30b commit signed in Nov ’25) will take time but will be a new AI workload driver beyond OpenAI.

Mgmt noted AI workloads continue to drive strong consumption attach of broader MSFT services.

Copilot: Last qtr’s inflection in Copilot adoption was driven by 1) accelerated innovation and quality improvement within the offering; and 2) strengthened GTM execution in targeting enterprise IT buyers.

MSFT sees momentum continuing as it expects more net sub adds in JunQ vs. MarQ (~5m).

New upcoming drivers include 1) E7 bundle (GA 2 weeks ago, designed for co’s that want to be a frontier firm, bundles new Agent 365 control plane for 1P/3P agent mgmt, identity and observability); and 2) Copilot Cowork (not GA yet), which better supports multitask reasoning, leveraging M365 Graph intelligence.

For GitHub Copilot (recognized in Azure), MSFT’s new per user + consumption pricing is a TAM enhancer that should help drive higher value-capture of the recent strong growth in agentic usage.

Dynamics: Regarding Dynamics 365 bookings commentary from MarQ and softer growth expected in JunQ guide, mgmt noted that 1) customers are shifting from buying seats to seats+agents, causing some change in buying cycle dynamics; 2) Dynamics 365 consumption revenue can fall into M365 or Azure; and 3) JunQ had a notable tough comp.”

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