Microsoft Stock Nears Record High as Azure's AI Growth Fuels Investor Optimism

After months of sluggish performance, Microsoft's stock is nearing its historical peak, fueled by the resurgent performance of its Azure cloud computing division. The tech giant’s shares are just 1.5% below the record high set last July, with a 16% rise in May, poised for its best month in over three years. This surge is driven by a general rebound in U.S. equities and better-than-expected results from Azure as investors bet that artificial intelligence will continue to propel the business forward.

The company, headquartered in Redmond, Washington, recently reported third-quarter earnings that beat Wall Street forecasts, with Azure’s revenues growing 33%, exceeding expectations. Azure's offerings include AI services that support tools like OpenAI’s ChatGPT, as well as databases and on-demand storage. Microsoft CFO Amy Hood noted last month that revenues from non-AI business also surpassed projections.

TD Cowen analysts, led by Derrick Wood, forecast that AI-related Azure revenue will rise from approximately $4 billion in fiscal 2024 to around $24 billion in fiscal 2026. These analysts, who maintain a “buy” rating on the stock, increased their target price from $490 to $540, representing an approximate 18% potential increase from Wednesday's closing price. Out of 72 analysts covering Microsoft, only six hold a “hold” rating, with none advocating a sell.

Despite recent lateral movement, some, like Nancy Tengler of Laffer Tengler Investments, suggest short-term gains may be limited. Conversely, Kevin Walkush of Jensen Investment Management expects continued rises, anticipating increased revenue from AI services. He views Microsoft as one of the best long-term investment prospects in AI, highlighting the company’s solid profitability and ability to effectively monetize ongoing business activities.