Microsoft is the most unloved Big Tech stock right now. Here’s how that could change.
Story by Christine Ji
There could be a comeback in the cards for Microsoft Corp., whose stock has fallen to the bottom of the “Magnificent Seven” pecking order in the third quarter.
Ben Reitzes, an analyst at Melius Research, believes shares of Microsoft have sold off unfairly. Investors shouldn’t be surprised if Microsoft regains some momentum in the coming months, as the company has plenty of “ammunition” to surprise investors with, Reitzes wrote in a note on Monday.
Microsoft’s strong Azure cloud-computing business, expertise with artificial intelligence enterprise agents and partnership with OpenAI should help it command a “premium valuation” against rival Alphabet Inc. Reitzes argued.
Alphabet has emerged in recent weeks as the new Big Tech favorite, outperforming Microsoft by 40 percentage points since Jul. 1 of this year. The Alphabet rally came after strong Google Cloud growth, a favorable antitrust ruling, and, most recently, a surge in Gemini adoption.
But as the artificial-intelligence landscape continues to evolve, Reitzes believes investors will come back to Microsoft’s strong business fundamentals, especially in regards to its Azure cloud-computing business, which posted 39% growth last quarter. Since 2021, Microsoft shares have averaged a 44% premium to Google based on their price-to-earnings ratios, which Reitzes attributed to Microsoft’s higher operating margins, larger cloud business and “a core software business which that seems safer” than Google Search.
“Azure has been a share gainer in cloud revenue, and AI demand is accelerating that trend,” Reitzes wrote.
Also read: Microsoft’s stock has been in a rut since earnings. What’s going on?
Microsoft’s partnership with OpenAI may have injected uncertainty into its stock outlook as the AI company navigates its transition away from a nonprofit structure. OpenAI is making progress toward monetization as the two companies announced a nonbinding memorandum of understanding for a revised relationship last week. The partnership could make Microsoft better-positioned than Google to take advantage of the AI inferencing surge as OpenAI drives enormous inference workloads onto Azure and Microsoft receives a share of OpenAI revenue.
Further down the road, Microsoft is also poised to be a winner from the rise of AI agents in enterprise software, as Microsoft’s existing platform gives it the upper hand in automating workflows since most enterprises already run their businesses on its ecosystem, Reitzes argued.
Microsoft’s next earnings call could provide the catalysts needed for a comeback if the company provides more details on its Copilot AI tool ecosystem adoption, according to Reitzes. He said Azure can sustain growth levels in excess of 30% for several quarters to come, solidifying Azure’s lead over Google Cloud.
“If the AI contribution can drive upside to the forecasts for Azure in [fiscal year 2026] toward 40%, it would be cheered by the market,” Reitzes wrote. “Checks for Azure are showing no slowdown and Microsoft should make some compelling announcements around agents and Copilot at its Ignite conference in November.”
Reitzes gives Microsoft a price target of $625 and a buy rating.
Microsoft is the most unloved Big Tech stock right now. Here’s how that could change. © Getty Images |
