UBS raises Microsoft target to $675 before earnings

UBS raised its Microsoft price target to $675 from $525 and kept a Buy rating in an analyst call reported by TheStreet on Oct. 17, naming Azure as the central earnings issue.

The reset comes before Microsoft's fiscal first-quarter report due Oct. 28, after UBS said the stock had climbed 39% since the June-quarter release and 30% over six months.

UBS analyst Karl Kierstead said Microsoft had become a “consensus long position,” with investors already looking for stronger results from Azure and Microsoft 365. Even so, UBS said “the fundamentals support those higher expectations.”

The bank also said Microsoft's valuation at 23 times calendar 2027 earnings “is not stretched,” according to TheStreet, citing Investing.com. A price target is an analyst's estimate of fair value, not a forecast guaranteed by the company or the market.

Azure drove the call. Microsoft's cloud platform grew 43% in the June quarter, and management guided to about 45% growth for the September quarter, according to TheStreet.

Azure carries the call

TheStreet said Azure crossed $100 billion in annualized revenue in the June quarter. Microsoft's broader Intelligent Cloud segment, which includes Azure, rose 32% to $39.3 billion over the same period.

Capacity remains part of the story. Microsoft said “customer demand for Azure remained higher than available capacity,” while commercial backlog increased 84% to $678 billion, according to TheStreet. Excluding OpenAI, backlog still rose 25%.

Microsoft 365 Copilot, the company's workplace AI assistant, had well over 30 million paid seats, TheStreet reported. That figure matters because investors are trying to separate AI enthusiasm from recurring software revenue.

UBS is not isolated. TD Cowen raised its Microsoft target to $625 from $540 and pointed to the potential for a “higher than normal” Azure beat, according to TheStreet. Mizuho lifted its target to $600 from $510 after channel checks it described as “very healthy overall.”

Citi raised its target to $636 from $600, citing survey and reseller checks pointing to faster growth in productivity software and public cloud, TheStreet said. Melius Research analyst Ben Reitzes upgraded Microsoft to Buy and lifted his target to $665 from $465, arguing demand for AI security and governance could strengthen Microsoft's position.

Morgan Stanley kept an Overweight rating and a $600 target, according to TheStreet. Its survey of chief information officers found 30% named Microsoft as the vendor most likely to capture the largest share of generative AI spending this year, up from 27% in the prior quarter.

AI costs test margins

The bullish case carries a cost. Microsoft expects about $175 billion of capital spending in calendar 2026, while Morgan Stanley analyst Adam Wood's model shows gross margin falling to 65.7% this fiscal year from 67.9%, TheStreet reported.

Wood said Microsoft “has the potential to monetize the same AI workflow at multiple points across its stack.” The question for investors is whether revenue from cloud capacity, software seats and AI tools can offset the spending required to build them.

Customer returns are still uneven. In Morgan Stanley's survey, 42% of chief information officers said they could not yet measure returns on AI token spending, while 28% said returns were below spending. Only 13% reported returns above spending, and 43% already had controls on token usage.

Broader positioning adds another risk. Bank of America's October fund manager survey found technology allocations at their highest level since August 2020, and managers named an AI bubble as one of their two biggest risks, according to TheStreet.

The next test is Microsoft's fiscal first-quarter FY2027 report on Oct. 28. UBS has rebuilt its Microsoft model to reflect a reporting reclassification the company announced last month, TheStreet said.

On Oct. 28, Microsoft's Azure growth for the September quarter will be measured against management's guidance for about 45% growth, after Azure grew 43% in the June quarter.

On Oct. 28, investors can compare Intelligent Cloud revenue with the June quarter's $39.3 billion, when the segment rose 32%, according to TheStreet.

On Oct. 28, Microsoft's backlog and capacity commentary will show whether demand continues to exceed available Azure capacity, after commercial backlog rose 84% to $678 billion.

Source: news article, TheStreet, Oct. 17, 2026