Shares of Microsoft (MSFT) rose in mid-day trading on Thursday, supported by a combination of analyst upgrades and improving sentiment toward software stocks.
The stock gained about 2.04% to $422.35, extending its recovery following the company’s recent quarterly results.
Earnings beat supports momentum
Microsoft’s fiscal third-quarter results, reported on April 29, exceeded expectations and helped underpin the latest gains.
The company posted revenue of $82.9 billion, representing an 18% increase year-on-year, while operating income rose 20%.
Diluted earnings per share came in at $4.27, above the consensus estimate of $4.06 and marking a positive surprise of just over 5%.
The results reinforced strength in Microsoft’s core cloud and software businesses, even as investors continue to scrutinise its spending on artificial intelligence infrastructure.
Rotation into AI names weighs on sentiment
Despite the recent rebound, Microsoft shares remain down about 10% year-to-date, reflecting broader investor concerns about heavy capital expenditure and a shift in market preferences toward more direct AI plays.
Jim Cramer said on CNBC that Microsoft has become a “real source of funds,” referring to its use by investors as a stock to sell in order to allocate capital to higher-growth AI opportunities.
“I still own it,” Cramer said, adding, “I just don’t think that they’re going to sit there and let this happen.”
He noted that Microsoft’s exposure to enterprise software — a key driver of its performance — is viewed by some investors as vulnerable to disruption from AI, contributing to the stock’s underperformance.
Analysts highlight long-term AI opportunity
Despite near-term concerns, several analysts remain optimistic about Microsoft’s long-term prospects.
Tigress Financial Partners analyst Ivan Feinseth raised his 12-month price target to $680 from $595, maintaining a Buy rating and implying significant upside from current levels.
Feinseth said Microsoft’s AI business is still in its early stages and expects strong demand for its cloud platform and AI tools to drive accelerated revenue and cash flow growth.
He added that the company’s investment in AI infrastructure, while costly in the short term, is likely to strengthen its competitive position and support long-term profitability.
Microsoft’s AI-powered Copilot tool was highlighted as a key growth driver, with the analyst noting its ability to increase revenue from existing customers while supporting the broader software ecosystem.
The company’s Azure cloud platform also remains central to its strategy, with continued demand for AI-related workloads expected to sustain growth.
Barclays also reiterated its Overweight rating on Microsoft following recent investor meetings, stating that the company’s strategy “remains on track.”
The bank highlighted two key takeaways: a strong focus on efficiency gains that are supporting Azure growth, and increasing adoption of Copilot, which could lead to a shift toward usage-based pricing models.
Microsoft’s recent stock performance reflects the broader tension between heavy investment in AI and expectations for near-term returns.
While concerns about capital expenditure persist, analysts broadly view the company’s strategy as positioning it for sustained growth in cloud computing and artificial intelligence.
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