Microsoft Stock Upgraded as Stifel Sees Stronger Azure Growth

Stifel upgraded Microsoft (NASDAQ: MSFT) to Buy from Hold and lifted its price target to $575 from $530, citing stronger confidence in the technology giant’s ability to maintain mid-to-upper-teens revenue growth.

Analysts led by Brad Reback said Microsoft appears to have gained momentum following its June-quarter results. They highlighted continued strength in Azure cloud growth, lower research intensity around large language models and an increasing revenue contribution from OpenAI as key catalysts heading into the second half of the year.

Azure benefited during the June quarter from improved infrastructure efficiency and stronger OpenAI-related demand. Stifel expects Microsoft could generate another 200 to 300 basis points of Azure upside as it improves efficiency across chips, AI models and software. The company has also become less cautious in its commentary about capacity constraints.

Microsoft CFO Amy Hood previously said the company had reduced its “dock-to-live” times by more than 50% over the past year. The improvement allows newly installed hardware to become operational and generate revenue more quickly.

Microsoft Copilot adoption is another potential growth driver. Copilot reached approximately 30 million seats in the fiscal fourth quarter, an increase of 10 million from the previous quarter. Meanwhile, GitHub’s transition toward consumption-based pricing could provide additional upside.

Stifel expects these factors to help offset slower seat expansion as Microsoft 365 approaches 500 million users, allowing the business to sustain at least mid-teens growth for several years.

The brokerage also said its previous concerns about Microsoft’s margin pressure were overly pessimistic. Improved Azure efficiency, the removal of OpenAI revenue-sharing payments following an April contract revision and the extension of certain asset useful lives to 25 years from 15 years could support profitability.

Microsoft’s need to aggressively fund proprietary large-language-model development is also easing as lower-cost open-weight AI models deliver increasingly competitive results. Although AI infrastructure spending is expected to remain elevated, Stifel believes Microsoft can achieve industry-leading operational efficiency while benefiting from continued demand for cloud computing and artificial intelligence services.