Morgan Stanley lowers Microsoft Corporation's (MSFT.US) target price to $472, short-term disturbances cannot block long-term AI potential.

Morgan Stanley released a research report, maintaining a "hold" rating on Microsoft Corporation (MSFT.US), but lowering the target price from $530 to $472. Morgan Stanley stated that due to ongoing demand concerns and persistently negative investor sentiment, market expectations for Microsoft Corporation's performance may need to be revised downward. However, Morgan Stanley still views Microsoft Corporation as a long-term winner in the Generative Artificial Intelligence (GenAI) field, and its valuation remains attractive. In the report, Morgan Stanley mentioned that surveys and channel checks indicate high levels of macroeconomic uncertainty, leading the firm to lower its performance expectations for Microsoft Corporation. Using fixed exchange rates, Morgan Stanley revised down its year-over-year growth estimates for Azure in Microsoft Corporation's third/fourth quarter from 31.5%/32% to 31%/30%, no longer expecting acceleration in growth in the second half of the fiscal year. Morgan Stanley also lowered its growth estimates for Microsoft Corporation's 365 commercial cloud services in the third/fourth quarter from 14%/13% to 13.5%/12%, marking the second consecutive revision to reflect macroeconomic uncertainty and mixed check results. Although short-term demand headwinds have dominated investor discussions, they have not yet fully been reflected in market consensus, and Morgan Stanley believes consensus estimates for Microsoft Corporation will be revised downward in the near future. Nevertheless, Morgan Stanley remains confident in Microsoft Corporation's overall positioning and believes its stock price may be approaching a valuation bottom, offering attractive long-term risk returns. Specifically, according to a survey conducted by Morgan Stanley's Chief Information Officer (CIO), Microsoft Corporation's position and leadership in the GenAI field remain relatively unchanged, with 35% of CIOs expecting Microsoft Corporation to gain the largest incremental market share by 2025. 30% of CIOs who have not yet started deploying AI projects express interest in leveraging large-scale cloud services providers like AWS, Azure, and GCP. In emerging areas such as AI agents, there is a general belief that Microsoft Corporation will play a role in AI agent strategies, reflecting the strategic advantage of Microsoft Corporation 365 Copilot in setting the foundation for future agent-based workflows. Furthermore, Morgan Stanley believes that Microsoft Corporation is in a favorable position in its investment cycle. Based on management comments and Morgan Stanley's analysis, Microsoft Corporation's capital expenditures may decrease, potentially leading to better-than-expected free cash flow growth, with each 1% decrease in capital expenditures expected to increase free cash flow by approximately 1.5%.