Melius Upgrades Microsoft to Buy, $665 Price Target

Melius analyst Ben Reitzes upgraded Microsoft (NASDAQ: MSFT) from Hold to Buy, PT $665.

“Things Changed: Microsoft’s stock could be ~40% into a 100% move off of its ~$353 bottom hit in June.

We knew MSFT would get a bounce after the last conference call, but thought maybe the new releases from frontier AI companies could provide some challenges.

Well, instead Dario Amodei and friends said the world could end.

In plain English, that freak out means (at least to us) that Microsoft and cyber companies are even more needed – and we are even seeing immediate interest in checks with resellers.

While “paying extra for AI” may not be a thing with certain SaaS companies (like Adobe) leaders like Microsoft especially (and even companies like ServiceNow) are going to get boosted more than we thought previously due to AI fears.

Enterprises are electing to spend on a secure wrapper that can route models to the right task and secure agents rather put their trust in the labs.

This view was actually the cornerstone of our original thesis before we got impatient with MSFT’s issues with Azure and Copilot during FY25.

Bottom Line: Satya Nadella and his team are increasingly going to be considered the “adults in charge” – a key cog in the security, governance and the “AI CYA” play that is likely in the early innings.

These dynamics help Microsoft benefit from stronger pricing trends (E7 mix, Fabric), while seeing upside from increased capacity in Azure, which we now see growing over 50% by F4Q27.

To that end, Microsoft’s prospects in core apps and Azure are better than we previously thought, as it may be more insulated from agentic threats like Muse vs. others.

We raise our FY27 EPS estimate ~2%, FY28 ~4% and initiate an FY29 estimate of $30.77 (~7% above consensus, up 25% y/y) – with Azure accelerating to over 50% growth.

Our target of $665 represents ~22x our FY29 EPS estimate.

We look forward to hearing more from management on the F1Q27 call later this month and then at Ignite at mid-November, which may serve as another catalyst.”

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