Morgan Stanley "clears the mines" for Microsoft: Three growth concerns are not worrisome, reiterates "Overweight" rating
Morgan Stanley has listed Microsoft as its top pick in the software sector, raising the target price from $582 to $625, while maintaining an "Overweight" rating. Analyst Keith Weiss pointed out that despite market concerns regarding Microsoft's relationship with OpenAI, the growth of Azure cloud services, and the health of office productivity applications, Microsoft has found ways to alleviate these pressures, and growth drivers are continuously increasing. He believes that the collaboration between OpenAI and other partners is not a negative for Microsoft, and Azure's growth potential remains strong
According to Zhitong Finance APP, Morgan Stanley published a research report, listing software giant Microsoft (MSFT.US) as its preferred stock in the software sector, raising the target price for the stock from $582 to $625, while maintaining an "overweight" rating.
Morgan Stanley analyst Keith Weiss pointed out in the report that issues surrounding the evolution of Microsoft's relationship with OpenAI, the sustainability of Azure cloud business growth, and the health of office productivity applications in the context of agent computing have consistently put pressure on Microsoft's stock price. However, we are confident that Microsoft has found a way to alleviate these pressures, and the growth drivers are continuously increasing, thus elevating it to a preferred stock.
In a deeper analysis, Weiss mentioned that although investors are concerned about Microsoft's partnership with OpenAI, OpenAI's pursuit of collaborations with other parties (such as the recent $300 billion partnership with Oracle (ORCL.US)) is not a negative for Microsoft.
Weiss explained in the report: "In our view, the signing of this partnership agreement should be seen as a signal of incremental positive significance for Microsoft. From Microsoft's perspective, in the current environment of limited resources, its core goal is to maximize profits, so we believe Microsoft will tend to allocate its limited capacity of GPU resources and power data center architecture more towards enterprise customers."
Additionally, there are concerns that as OpenAI turns to other partners, Azure's growth may slow down, but Weiss stated that this is not the case—because Azure's business scope extends far beyond generative artificial intelligence.
He added: "The Azure AI business revenue we derived from capital expenditures shows that there is significant room for Azure's performance to exceed our expectations. In our capital expenditure model, the implied contribution scale of Azure AI business is calculated based on the capital expenditure allocated specifically to AI-related projects."
Finally, recent survey data shows that Microsoft's office productivity applications have a "sustainable" advantage in user perception and market share, and its ability to continuously optimize products has been repeatedly validated.
Weiss concluded: "In summary, we understand the concerns in the market, but we believe that the existing data and survey results support the view that Microsoft's growth is sustainable. The double-digit growth rate, operational cost control capabilities, stock repurchase plan, along with dividend yield, collectively constitute a high double-digit sustainable total return level for Microsoft, while the current stock price has not fully reflected this value."
