Microsoft Stock (NASDAQ:MSFT) saw an increase in pre-market trading on Friday following an upgrade by investment firm UBS. The upgrade was driven by expectations of a more favorable cloud environment and the potential benefits derived from artificial intelligence (AI).
Analyst Karl Keirstead revised his rating on Microsoft stock (NASDAQ:MSFT) from neutral to buy, while also raising the per-share price target from $345 to $400. Keirstead highlighted recent indications that spending on both Microsoft’s Azure and Amazon’s (NASDAQ:AMZN) AWS had begun to stabilize after a significant deceleration over the past year.
According to Keirstead, the latest checks conducted by UBS suggest that while the cloud environment remains challenging, it is no longer deteriorating, indicating that the worst may be behind them. Some partners have reported a gradual recovery in new bookings, leading UBS to adjust its Azure estimates for the fourth quarter and beyond.
Keirstead emphasized that Microsoft (NASDAQ:MSFT) has already benefited from the excitement surrounding AI, with the stock showing a year-to-date increase of over 40%. However, he believes the company could further capitalize on this trend, driven by Azure’s revenue growth resulting from increased AI workloads. Additionally, the upcoming announcement of Microsoft 365 Copilot monetization, potentially generating $10 to $15 per seat, is expected to contribute to future gains.
Acknowledging that Microsoft (NASDAQ:MSFT) currently trades at a forward cash flow multiple of 38x, compared to the broader peer group’s average of around 30x, Keirstead argued that the company deserves a higher premium due to its significant exposure to the emerging AI opportunity. He also noted that the elevated period of capital expenditure intensity projected for CY24 might temporarily depress free cash flow.
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Author Faith Yakubu 
