Microsoft shares MSFT rose more than 1.6% on Monday after Melius Research upgraded the software giant to Buy from Hold and lifted its price target to $665.
The research firm argued that growing corporate concerns about artificial intelligence could itself become a powerful driver of demand for Microsoft’s security and governance products.
The new target implies more than 26% upside from Monday’s trading levels.
Microsoft shares have already gained over 40% from their June low of $353.
The stock has gained 11% this year.
AI concerns could drive enterprise spending
Melius analyst Ben Reitzes said enterprises are increasingly looking for ways to deploy AI without exposing themselves to the security and governance risks associated with relying directly on frontier AI labs.
“Enterprises are electing to spend on a secure wrapper that can route models to the right task and secure agents rather than put their trust in the labs.”
Melius said Microsoft is increasingly becoming the “adults in charge” for enterprise AI security and governance as companies seek greater control over how AI models and agents are deployed.
The brokerage expects Azure growth to accelerate beyond 50% by the fourth quarter of fiscal 2027, reflecting stronger enterprise adoption and spending on Microsoft’s broader cloud and AI infrastructure.
The upgrade follows recent comments from AI executives that have heightened concerns about the risks associated with increasingly capable AI systems.
Melius said those concerns have already prompted enterprise resellers to show greater interest in Microsoft’s security offerings.
The brokerage also raised its earnings estimates, increasing its fiscal 2027 forecast by 2% and fiscal 2028 estimate by 4%.
It initiated a fiscal 2029 earnings estimate of $30.77 a share, about 7% above consensus.
Its $665 price target represents roughly 22 times its fiscal 2029 earnings estimate.
New AI revenue opportunities emerge
Melius’ bullish view comes after Piper Sandler last week raised its price target on Microsoft to $610 from $550 while maintaining an Overweight rating.
Piper Sandler developed a new framework for evaluating Microsoft’s M365 Commercial Cloud business following the company’s “Super App” announcement, the introduction of its E7 tier, and growing adoption of consumption-based pricing for Copilot and Cowork.
The brokerage estimates that every 10% shift in customer seats from the existing E5 tier to E7 could generate about $2 billion in annualized revenue.
The impact is expected to build gradually as customers move between subscription tiers.
Piper Sandler also sees significant potential in consumption-based revenue from Copilot and Cowork, estimating the businesses could reach a $2 billion annualized revenue run rate by the end of fiscal 2028.
The firm said part of their appeal comes from Microsoft’s enterprise technology “harness” and auto-routing capabilities, which can direct tasks to appropriate models at lower costs than relying exclusively on frontier AI systems.
That could allow Microsoft to monetize AI consumption more quickly than under the traditional seat-based Copilot model.
Investors seek returns from AI spending
The bullish forecasts come as investors increasingly scrutinize whether the enormous sums being spent on AI infrastructure can translate into durable revenue and cash flow.
For Microsoft, the opportunity extends beyond selling access to AI models.
Its position across cloud infrastructure, enterprise software and security could allow it to benefit as companies seek to deploy AI while keeping tighter control over costs, data and governance.
Melius’ upgrade suggests those concerns may ultimately reinforce Microsoft’s position rather than weaken it, as enterprises turn to established technology providers to manage the risks of the AI transition.
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