Bernstein says Microsoft's (MSFT) share price may soar 62%-a point to watch

Key Points

Contents

Key Points

Azure's way forward

Wall Street's perspective

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Bernstein maintains an "outperform" rating on Microsoft with a target price of $646, a 62% upside from Tuesday's close.

Microsoft's share price has fallen 16% since the beginning of 2026, but has rebounded 13% since bottoming out on June 25.

Azure's expansion faces resistance from semiconductor supply constraints and rising memory costs.

Bernstein expects a possible acceleration in the next few quarters, but believes that upcoming earnings reports will not trigger this trend.

Financial results are scheduled for July 29; options markets predict potential price volatility of 6.7%.

2026 will be a challenging year for Microsoft. Shares have fallen 16% since January on concerns about its large-scale infrastructure investment and strategy to decentralize computing power across business units rather than focus on cloud services.

Microsoft

However, Bernstein analyst Mark Modler remains bullish on the technology giant. He maintained his "outperform" rating and set Microsoft's price target at $646-a significant 62% premium to Tuesday's closing price.

Given that Microsoft's share price was trading at around $398 on Tuesday, reaching that goal seems ambitious. But Modler's core view is that based on current valuations, Microsoft is a "high-quality company with minimal downside risks." Trading at a P/E ratio of 23.32 and a P/E growth ratio of 0.79, Bernstein believes the stock is undervalued.

The technology giant will announce quarterly results on July 29. The implied market volatility reflected in option pricing suggests that stock prices may rise or fall by about 6.7% after the earnings report is announced.

The way forward for Azure

Azure is a key part of this investment narrative. The cloud platform faces dual constraints: insufficient supply of CPUs and GPUs to meet customer needs; at the same time, high memory costs have squeezed profit margins.

Modler believes that if Microsoft wants to obtain a higher valuation multiple, it must prove that Azure's revenue growth is sufficient to support its huge infrastructure spending, while the division's gross profit margin stabilizes. Market participants are also seeking evidence of an improvement in the free cash flow margin trajectory.

It is encouraging that some indicators have shown positive trends. Last quarter, capital investment (adjusted for component price inflation) grew slower than Azure's revenue growth. In addition, AI-related gross profit margins have stabilized and are expected to further strengthen in the future.

Modler said that full verification of Microsoft's artificial intelligence strategy may take another quarter or two, but it may also be achieved in the near future. He did not make a clear judgment on the specific time.

Wall Street's perspective

Bernstein's optimistic expectations are not isolated on Wall Street.

Morgan Stanley's Adam Wood recently covered Microsoft for the first time, giving it an "overweight" rating with a target price of US$600, emphasizing that the Azure and Copilot business segments are expected to reach an "turning point."

Truist Securities gives Microsoft a "buy" rating with a target price of US$575, optimistic about its long-term Azure and AI expansion prospects. Oppenheimer gave it an "outperform" rating with a target price of $515, pointing to strong demand and excellent execution of the AI business.

Jill Luria of D.A. Davidson emphasized that Microsoft's Copilot serves as an "orchestration layer" that allows users to switch seamlessly between different AI models without disrupting the workflow.

Bernstein described the Wall Street consensus ahead of the July 29 earnings release as "flat"-analysts expect solid results, but not necessarily a stunning performance.

Microsoft's financial report on July 29 will disclose in detail its fiscal fourth-quarter results, and the market will focus on Azure's growth trajectory and the latest information on AI profit trends.