Microsoft Shows “Sense of Urgency,” But MSFT Stock Will Only Rally on This Condition

Microsoft’s MSFT -2.51% ▼ response to the retention crisis facing its Copilot AI assistant and concerns about its M365 flagship productivity suite “signal a more aggressive stance and sense of urgency,” according to UBS UBS -2.28% ▼ . However, the investment bank believes the U.S. tech giant’s shares — which have dropped about 23% year-to-date — will only spark a rally after these narratives improve.

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Microsoft Moves to Defend AI Position

Reports emerged last week that Microsoft had implemented a shakeup of the executive group and teams for the Copilot amid disappointment with the pace of adoption of the AI tool.

Earlier this month, the Redmond, Washington-based company launched the Copilot CoWork, its autonomous AI tool built in partnership with startup Anthropic. Microsoft also unveiled the Microsoft 365 E7, its new $99-per-month workplace software bundle planned for later release this May.

Investors Need More Time, Says Analyst

However, UBS’ five-star analyst Karl Keirstead — who attended Microsoft’s investor relations meeting in Asia and Australia over the last two weeks — believes that it will take time for investor sentiment about M365 and Copilot to improve.

This is even as OpenAI and Anthropic’s early incursion into Microsoft’s “knowledge work” core business — that is, areas such as software for writing and data analysis — has led to concerns about the durability of the tech giant’s core business.

No Insight on Solid Azure Demand Beyond Q3

Keirstead also commented on worries about below-expectation revenue growth from Microsoft’s Azure and capacity issues facing the cloud service. He noted that while Microsoft “sounded very bullish” on Azure demand, the tech company provided no insight into sales trends beyond its third-quarter that wraps up at the end of this month.

Due to valuation pressure on software stocks and competition from the two startups, Keirstead trimmed his MSFT price target by 15% from $600 to $510, implying about 38% upside.

What Is the 12-Month Price Target for MSFT?

Across Wall Street, analysts remain highly bullish on Microsoft’s shares despite the concerns. The stock currently enjoys a Strong Buy consensus rating based on 33 Buys and three Holds assigned over the past three months.

Moreover, the average MSFT price target of $583.68 implies about 58% upside from current trading levels.

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