Wells Fargo Sees a Strong Setup Into Year-End
Wells Fargo has added Microsoft (MSFT) to its Tactical Ideas list, its near-term stock picks for the fourth quarter. Analyst Michael Turrin kept his Overweight rating and raised his price target from $700 to $725. He pointed to three catalysts: Microsoft’s AI strength across its products and infrastructure; its Ignite conference in mid-November, which he expects to be larger than usual; and a new way of reporting results — Microsoft is cutting its business segments from three to two, called Agents and Infra, and Devices and Consumer.
Why the New Azure Number Is the One to Watch
I think the reporting change could have the biggest effect on the stock. Microsoft will now report Azure revenue in dollars every quarter and leave out sales that aren’t tied to actual usage. That gives investors a much cleaner look at how much customers are really using its cloud for AI. Turrin believes this leaves more room for upside, and I agree. If AI demand is as strong as Microsoft says, it should become easier to see.
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It cuts both ways, though. A cleaner number also makes any slowdown harder to hide. The new segment names say a lot, too. Putting “Agents” at the front of its biggest business suggests Microsoft wants investors to judge it on AI agents going forward.
Microsoft Trades Below Its Usual Valuation
Microsoft looks reasonably priced for a company with this much AI exposure. The forward GAAP P/E of 26.04x sits about 14% below its five-year average, and the forward price-to-sales ratio of 9.74x sits about 10% below. That discount is notable because growth is expected to speed up. Analysts see earnings rising about 14% this fiscal year, then 20% to 22% in the next couple of years. Based on fiscal 2028 earnings, the P/E would fall to roughly 22x. Microsoft does have net debt of $52 billion, but that’s a small amount for a company worth $3.8 trillion. To me, that's an appealing setup. Investors are paying less than usual even as earnings growth picks up.
Microsoft’s next earnings report will give investors their first look at the new reporting structure. If it shows strong usage, Wells Fargo’s call could look well-timed.
About Microsoft Stock
Microsoft is a technology company that provides cloud computing, software, AI services, and devices. Its product portfolio includes Azure, Microsoft 365, Copilot AI agents, LinkedIn, and Xbox. Founded in 1975, the company is headquartered in Redmond, Washington, and is led by CEO Satya Nadella.
Year-to-date, Microsoft’s stock has gained 11%, slightly trailing the S&P 500’s ($SPX) 13% gain during the same period. The shares surged after its fiscal fourth-quarter results on July 29, when Azure growth accelerated to 43%. Azure’s annual revenue also topped $100 billion for the first time. The stock now trades near its all-time high.
www.barchart.comAzure’s Acceleration Sets Up a Strong Start to Fiscal 2027
Microsoft reported its fourth-quarter fiscal 2026 earnings on July 29. Revenue rose 18% year-over-year to $90 billion, beating the $87.6 billion consensus. Non-GAAP EPS of $4.74 also topped the $4.24 estimate. Microsoft Cloud revenue climbed 27% to $59.3 billion, while Azure growth of 43% beat the roughly 40% analysts expected. Microsoft 365 Copilot also passed 30 million paid seats, an early sign that its AI products are gaining traction.
For the first quarter of fiscal 2027, Microsoft guided revenue of $89.85 billion to $90.95 billion, implying about 16% growth at the midpoint. CFO Amy Hood expects Azure to grow about 45% in constant currency, above the 41.4% consensus. Capital spending is expected to top $50 billion in the quarter, as Hood said demand continues to outpace supply.
What Do Analysts Expect for Microsoft Stock?
Wall Street has turned more bullish on MSFT stock lately. Scotiabank recently raised its price target from $510 to $615 and kept an Outperform rating, calling it a leader in enterprise AI. A few days before that, Wells Fargo and Piper Sandler also raised their price targets and kept an Overweight/Buy rating.
Based on 51 Wall Street analysts, Microsoft holds a “Strong Buy” rating with a mean price target of $568.15, indicating an 8% upside.
www.barchart.com On the date of publication, Jabran Kundi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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