Microsoft bulls look to Azure for the stock’s next pop
Bernstein’s Mark Moerdler sees Microsoft shares rebounding in coming quarters, but says Azure must prove the spending is paying off.
By Sal Moretti · Money Reporter
2 min read
Microsoft’s shares are down 16% this year, but Bernstein analyst Mark Moerdler says the software giant could be setting up for a rebound in the coming quarters.
Moerdler, according to MarketWatch, expects Microsoft to post a solid June-quarter earnings report next week. He stopped short of calling that report the clean turning point for the stock, saying it remains unclear whether the numbers will quiet investor worries.
His broader call is much more upbeat. Moerdler described Microsoft as a high-quality company with limited downside, according to the report, and set a $646 price target on the stock. That target would be 62% above Microsoft’s Tuesday closing price.
Azure has to carry the argument
The pressure point is Microsoft’s cloud business. Moerdler wrote that investors need to see clearer proof that Azure revenue can support the company’s rising spending, MarketWatch reported.
Microsoft has been under scrutiny from analysts and investors over its heavy capital expenditures. The company’s decision to spread computing power across several business priorities, rather than focus more narrowly on cloud, has also drawn attention.
Moerdler said Microsoft must also show that Azure’s gross margins are stabilizing. Without that, he suggested, the market may be reluctant to award the stock a higher valuation multiple.
Azure is facing a supply crunch in key computing resources, according to Moerdler. He pointed to limits in central processing units and graphics processing units, which means Microsoft does not have enough chip capacity to meet all demand. Higher memory prices are another headwind.
Investors will also be watching for a clearer route to stronger free-cash-flow margins, Moerdler wrote.
Wall Street is still leaning bullish
The stock has not been all pain lately. MarketWatch reported that Microsoft shares have climbed 13% since their June 25 low, even after a rough start to the year.
Other analysts have also sounded optimistic. D.A. Davidson analyst Gil Luria recently praised Microsoft’s Copilot artificial-intelligence assistant, saying it helps meet demand for a layer that can coordinate work below frontier AI models, according to MarketWatch. That setup can let users move between AI models while limiting disruption to their businesses.
Morgan Stanley analyst Adam Wood also began coverage of Microsoft on Tuesday with an overweight rating and a $600 price target, MarketWatch reported. Wood said both Azure and Copilot are positioned to improve.
Microsoft reports earnings next week, giving investors a fresh look at whether its AI and cloud spending is starting to produce the kind of growth Wall Street wants. For Moerdler, the breakout case is still alive, but Azure needs to do more of the talking.
This story draws on original reporting from MarketWatch.