Key Takeaways Bernstein maintains Outperform stance on Microsoft with $646 price target, representing 62% potential gain from Tuesday’s closing price. MSFT shares have declined 16% year-to-da
The year 2026 has proven challenging for Microsoft. Shares have tumbled 16% since January, pressured by concerns surrounding its aggressive infrastructure investments and the strategic allocation of computational power across various business segments instead of concentrating exclusively on cloud services.
Yet Mark Moerdler, an analyst at Bernstein, remains bullish on the tech giant. He’s maintained his Outperform recommendation while establishing a $646 price objective for MSFT — representing a substantial 62% premium to Tuesday’s closing figure.
With MSFT changing hands around $398 on Tuesday, reaching that target appears ambitious. However, Moerdler’s thesis centers on viewing Microsoft as a “quality business with little downside” given current valuation levels. Trading at a P/E multiple of 23.32 and a PEG ratio of 0.79, Bernstein considers the stock undervalued.
The tech behemoth will unveil quarterly results on July 29. Market-implied volatility from options pricing suggests approximately 6.7% movement in either direction following the announcement.
Azure represents the critical component in this investment narrative. The cloud platform faces dual constraints: insufficient CPU and GPU availability to satisfy customer demand, combined with elevated memory costs that pressure profitability.
To command a premium valuation multiple, Moerdler believes Microsoft must demonstrate that Azure’s revenue expansion warrants the massive infrastructure spending, while gross margins in that division begin to stabilize. Market participants also seek evidence of improving free cash flow margin trajectory.
Encouragingly, certain metrics are already trending favorably. During the previous quarter, capital investments — when adjusted for component price inflation — expanded at a slower pace than Azure revenue growth. Additionally, AI-related gross margins have found stability and are projected to strengthen going forward.
According to Moerdler, complete validation of Microsoft’s artificial intelligence strategy might require one or two additional quarters, though it could potentially materialize in the upcoming period. He’s not making a definitive call on timing.
Bernstein’s optimistic outlook has company on Wall Street. Morgan Stanley’s Adam Wood recently initiated coverage with an Overweight recommendation and $600 price objective, highlighting Azure and Copilot as segments poised to “inflect.”
Truist Securities carries a Buy rating on MSFT with a $575 target, emphasizing long-term Azure and AI expansion prospects. Oppenheimer assigns an Outperform rating with a $515 objective, citing robust demand and strong AI business execution.
Gil Luria from D.A. Davidson highlighted Microsoft’s Copilot for functioning as an “orchestration layer” that enables users to transition between AI models seamlessly without disrupting operational workflows.
Bernstein characterizes Street consensus heading into the July 29 announcement as “muted” — analysts anticipate solid results but not necessarily a transformative beat.
Microsoft’s July 29 earnings release will detail fiscal fourth-quarter performance, with particular attention on Azure’s growth trajectory and any updates regarding AI profitability trends.
The post Microsoft (MSFT) Stock Could Surge 62% According to Bernstein — Here’s What to Watch appeared first on Blockonomi.
