Microsoft’s (MSFT) AI and Cloud Synergy Fuels Profitability, Says Morgan Stanley

Microsoft Corporation (NASDAQ:MSFT) is one of the AI Stocks Making Waves on Wall Street.  On July 31, Morgan Stanley analyst Keith Weiss raised the price target on the stock to $582.00 (from $530.00) while maintaining an “Overweight” rating.

The rating affirmation by Morgan Stanley is backed by durable margins at Microsoft, with the company ending FY25 with operating margins at 45.6%.

The firm also noted how capital expenditures have been aggressive, and cloud revenue contribution has been growing. However, analysis at Morgan Stanley reveals that gross margins are currently 100 basis points higher than FY20 levels.

“There are multiple components of this improving margin equation including: 1) while mixing down with lower-margin business like Azure, the margins within these businesses are improving as Microsoft finds ways to run them more efficiently (see the 90% token growth comment above); 2) extending the useful life of the infrastructure given an expansive portfolio of solutions with varying resource needs; and 3) optimizing lower-growth areas to fund the higher-growth portions of the portfolio – More Personal Computing revenues grew 9% YoY, while operating income grew 33% YoY.”

Is it Still a Wise Move to Buy Microsoft (MSFT) Shares?

“With headcount roughly flat exiting FY25 and management guiding to flat operating margins in FY26, this trend looks poised to continue. With Productivity and Business Processes growing 14% cc and Intelligent Cloud growing 25% cc, we are likely far from seeing a ‘fully optimized’ Microsoft.”

Microsoft Corporation (NASDAQ:MSFT) provides AI-powered cloud, productivity, and business solutions, focusing on efficiency, security, and AI advancements.

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Disclosure: None.