Morgan Stanley Raises Microsoft Price Target to $650

Morgan Stanley analyst Adam Wood raised the price target on Microsoft (NASDAQ: MSFT) to $650 (from $600) while maintaining an Overweight rating.

“Microsoft delivered a strong start to FY27, with revenue of $92.3B (+19% YoY) and operating income of $45.9B (+21% YoY) ahead of expectations, as strength across Microsoft Cloud increasingly translated into earnings growth.

Azure accelerated 6pts QoQ to 48% YoY cc, ahead of expectations despite third-party capacity delays, while M365 Commercial Cloud accelerated to 18% YoY cc, driven by both seats and ARPU.

Importantly, the acceleration in growth continues to come with strong underlying economics, as gross margins of 67.8% came in ahead of consensus by 60 bps, driven by better Azure product-level margins, while platform efficiencies supported operating margin of ~50% despite elevated AI investment and the continued mix shift toward Azure.

Further, we continued to see the strong operating discipline as operating margins came in close to 50%, ahead of MS/Street at c.

49%/48.5%.Looking ahead, Q2 guidance calls for further acceleration in both Azure (49-50% YoY cc) and M365 Commercial Cloud (~19% YoY cc), with broader compute demand continuing to exceed supply.

With growth accelerating, AI monetization broadening, and infrastructure efficiencies supporting operating leverage, we view the Q1 print as another clear validation of our thesis that Microsoft’s AI investments can drive durable high-teens revenue growth and >20% earnings growth.

Thus, 21x FY28 GAAP EPS remains too cheap; applying a conservative 1.3x PEG and 26x P/E support our $650 price target and ~23% upside. Remain OW.”

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