Microsoft Upgrade Bolsters AI Security Case
Microsoft upgrade reframes AI security demand as catalyst; Melius raised EPS forecasts and set a $665 target, prompting investors to reassess positioning.
KEY TAKEAWAYS
- Melius Research upgraded Microsoft to Buy and set a $665 price target.
- Firm said enterprises prefer a secure wrapper for AI, favoring cloud providers with governance tools.
- Melius raised near-term EPS forecasts and initiated fiscal-2029 EPS at $30.77, about 7.0% above consensus.
HIGH POTENTIAL TRADES SENT DIRECTLY TO YOUR INBOX
Add your email to receive our free daily newsletter. No spam, unsubscribe anytime.
Melius Research upgraded Microsoft Corp. (MSFT) on Oct. 5, 2026, citing rising corporate demand for tools to secure and govern artificial-intelligence systems. The firm raised near-term earnings forecasts and projected faster Azure growth, supporting a bullish outlook for the stock.
Analyst Upgrade and AI-Security Thesis
Melius Research raised Microsoft from Hold to Buy and set a $665 price target, with analyst Ben Reitzes leading the call. The upgrade reflects growing corporate concern about AI risks, which Melius said could boost demand for vendors offering security, routing, and governance tools for AI models and agents. The firm described enterprise buyers as adopting a “secure wrapper” around AI systems rather than relying directly on AI laboratories, favoring providers that combine cloud scale with governance controls. This framing positions Microsoft as a trusted AI vendor and underpins the upgrade.
Growth Outlook and Earnings Estimates
Melius expects Azure growth to exceed 50% by the fourth quarter of fiscal 2027, driven by additional capacity coming online and being absorbed. The firm raised its fiscal 2027 earnings-per-share (EPS) estimate by 2% and its fiscal 2028 estimate by 4%. It also initiated a fiscal 2029 EPS estimate of $30.77 per share, about 7% above consensus. The $665 price target implies a valuation near 22 times that fiscal 2029 EPS estimate.
A same-day report cited roughly $175 billion in fiscal 2027 capital expenditures and a 23.2% decline in fourth-quarter free cash flow, though these figures have not been confirmed by Microsoft filings. The upgrade reflects Melius’s view that demand for AI governance and security could accelerate cloud adoption and support further upside for Microsoft’s stock.
