Microsoft Corporation (NASDAQ: MSFT) continues to stand out among leading artificial intelligence stocks, earning top recognition from Morgan Stanley. On December 17, the investment bank reaffirmed Microsoft as its preferred large-cap software stock, pointing to strong demand across the company’s business segments and improving operating margins.
Morgan Stanley analyst Keith Weiss maintained a Buy rating on Microsoft shares and reiterated a $650 price target. Following meetings with Microsoft executives, Weiss expressed confidence in the company’s growth trajectory, citing durable mid-teens revenue growth and increasing returns on AI investments.
According to Weiss, discussions with Microsoft leadership reinforced expectations that rising demand is translating into sustained top-line performance while also supporting ongoing operating margin expansion. The firm highlighted Microsoft’s ability to efficiently scale its AI-driven offerings as a key factor in its bullish outlook.
A major focus of Morgan Stanley’s analysis was Azure AI. The firm estimates that Azure AI’s gross margins—excluding OpenAI revenue-sharing arrangements—are currently around 20%. These margins are projected to rise to approximately 30% by fiscal year 2029, with the potential to exceed 40% over time. Morgan Stanley noted that this trend presents significant upside to its long-term financial model.
The bank also pointed to its newly adopted Capex-Implied approach for Azure forecasting. This methodology incorporates insights from Microsoft leadership, indicating faster growth in bookings, remaining performance obligations (RPO), and product adoption across Azure’s AI portfolio.
Additionally, Morgan Stanley emphasized the improving efficiency of Microsoft’s AI investments, noting that Azure AI margins are already positive and that the company remains focused on driving further operational efficiencies.
Microsoft develops and sells a broad range of software, cloud services, devices, and enterprise solutions, serving customers worldwide. While analysts remain optimistic about the company’s AI-driven growth, some investors continue to evaluate alternative AI stocks that may offer higher upside potential with different risk profiles.
