Microsoft (MSFT.US) faces a "higher bar" after its rebound! Morgan Stanley remains bullish: Azure growth and Copilot commercialization are key drivers, target price set at $600

According to Jinse Finance, Morgan Stanley stated that Microsoft (MSFT.US) shares have recently rebounded, so the tech giant will face a “higher bar” to maintain its upward momentum. The bank has given Microsoft an “Overweight” rating and set a target price of $600, which represents an upside of nearly 12% compared to Microsoft’s closing price of $533.52 on Monday.

Morgan Stanley believes that Microsoft needs to demonstrate Azure’s growth can remain in the mid-40% range, further promote the commercialization of Microsoft 365 and Copilot, and maintain “strict discipline” in operating expense control to extend this growth trend into its fiscal year 2027.

Morgan Stanley analyst Adam Wood further pointed out that demand for Azure remains “robust” in both core cloud business and Artificial Intelligence (AI) workloads. The bank’s recent Chief Information Officer (CIO) survey found that, as workloads migrate to the cloud, Microsoft continues to be the biggest beneficiary of IT budget share growth, ahead of Amazon (AMZN.US) and others.

The analysts wrote: “Importantly, we believe that increased data center capacity availability will provide additional support for Azure growth. According to our latest capacity tracking data, Microsoft is expected to add about 3.25GW of new capacity online in fiscal year 2026, and we project about 4.25GW of capacity will come online in fiscal 2027. As these capacities ramp up and the overall capacity system continues to improve in efficiency, we believe higher capacity availability will be another key lever driving Azure’s growth.”

As for Microsoft 365, recent surveys of partners show that the E3 to E5 upgrade trend remains strong, largely due to security needs, while early adoption of E7 is another potential upside driver. The analysts added that, meanwhile, Copilot adoption rates are also improving.

In a note to clients, the analysts wrote: “Following last quarter’s better-than-expected results and initial guidance for fiscal 2027 showing durable growth momentum in core businesses, street narrative around Microsoft has materially improved.”

The analysts added: “With continued improvements in both market narrative and fundamentals, Microsoft’s valuation has risen over the past several months, which means market expectations for the company are now higher heading into the first quarter of fiscal 2027 (F1Q27) results. However, Microsoft’s current share price is trading at about 27 times next twelve months (NTM) GAAP earnings per share, which is still below the historical average of around 28 to 29 times. On a growth-adjusted basis, this discount is even more notable—Microsoft’s current NTM P/E/G ratio is about 1.25 times, compared to a historical range of about 1.9 to 2.2 times. Given the market expects Microsoft’s earnings growth rate will exceed 20% after fiscal 2027, we continue to find the risk-reward attractive, although we acknowledge that higher valuation and improved market sentiment mean there is now a higher bar for further share price upside ahead of the F1Q earnings report.”