Morgan Stanley Reduces Microsoft Price Target, Encourages Building Positions in This ‘Long-Term Winner’ on the Dip

Morgan Stanley has adjusted its price target for Microsoft, reducing it from $520 to $506 following the tech company’s recent earnings announcement.

In its report, Microsoft revealed plans to ramp up investments in artificial intelligence infrastructure during the current fiscal year, even as it navigates slower growth within its cloud division. This indicates that the expected returns from substantial AI investments may take longer to realize than initially thought by market analysts.

Following the earnings report, Microsoft’s shares saw a decline of as much as 7% in after-hours trading, although the losses were later trimmed to around 1.5%.

Despite lowering the price target, Morgan Stanley analysts remain optimistic about Microsoft stock. They encourage investors to capitalize on the dip, describing the company as a strong long-term investment opportunity.

For the fiscal year 2025, Microsoft reported a 16% year-over-year increase in revenues, reaching $245 billion, while operating income rose 22% to $109 billion. The earnings per share increased by 20% to $11.80, and free cash flow grew by 25% to $74 billion.

However, analysts highlighted that the aggressive investment strategy has resulted in higher capital expenditures, which have risen from an estimated $63 billion to $78 billion for FY25. Consequently, the firm has revised its EPS estimate for FY25 down by 3% to $13.06.

Nonetheless, analysts are confident in Microsoft’s long-term potential. They noted that management’s comments during the earnings call reinforced their belief in the company’s ability to monetize its investments effectively.

The analysts pointed out significant opportunities for Microsoft, particularly in automating enterprise operating costs. They project that revenue from Generative AI could reach $67 billion by fiscal 2029 in a base case scenario, and as high as $121 billion in a more optimistic scenario.

With the anticipated investments in capital expenditures aligned with current demand trends, the analysts believe their bullish estimates for Microsoft are increasingly achievable. They noted a potential upside of approximately 23% to the revised price target of $506, maintaining a positive outlook on what they view as a leader in AI within the software sector.