Morgan Stanley supports the performance of "AI leader" Microsoft Corporation (MSFT.US) before the fourth quarter: Azure high growth + Copilot potential support attractive risk-return.

Morgan Stanley recently released a research report, conducting a forward-looking analysis of the fourth-quarter performance of Microsoft Corporation (MSFT.US), believing that its current risk-return profile is attractive. The core logic lies in Microsoft Corporation's leading layout in the field of artificial intelligence (AI), stable growth in core business, and operational efficiency advantages, which are expected to support achieving a mid to high single-digit total return in the medium to long term. The firm maintains a "hold" rating on Microsoft Corporation with a target price of $530. Following a strong performance in the third quarter, investor sentiment has improved, driving Microsoft Corporation's stock price close to its historical high. The tech giant is set to release its financial report for the new quarter after the market closes on July 30th. Considering Microsoft Corporation's leading position in the field of generative AI and its potential to achieve sustained mid to high single-digit total returns, the firm calculates its risk-return ratio at around 29 times the earnings per share under the officially recognized accounting principles for the fiscal year 2027, believing that the risk-return profile is still attractive. 15%-20% total return expected to continue Morgan Stanley stated that Microsoft Corporation is expected to benefit from its extensive investments in generative AI and solutions, providing support for its stock price increase and future sustainable growth. Coupled with Microsoft Corporation's continued strong ability to control operating expenses, the firm has more confidence that Microsoft Corporation can achieve sustained mid to high single-digit (15%-20%) total returns in the coming years. Losses from OpenAI are expected to impact earnings per share in fiscal year 2026, but the firm predicts that Microsoft Corporation will reach a loss limit of $13 billion in the fourth quarter of fiscal year 2026, which will significantly accelerate the earnings per share growth for fiscal year 2027 by exceeding 20%. Strong performance from the previous quarter expected to continue In the third quarter of fiscal year 2025, Microsoft Corporation's various businesses all exceeded market consensus expectations, and the company did not find any demand impacted by macroeconomic factors. Azure achieved a growth of 35% calculated at a fixed exchange rate, significantly higher than the expected 31%, with a 4-percentage point increase in sequential growth. The firm stated that although Azure's AI business performance is stable, contributing to growth by 13 percentage points from the previous quarter, it is expected to contribute 16 percentage points this quarter, surpassing the firm's expectations for Azure's core business. Strong revenue growth, gross margin exceeding expectations, and effective control of operating expenses drove a 110-basis-point increase in operating profit margin year-on-year and exceeded earnings per share expectations by 7%. Morgan Stanley mentioned that Microsoft Corporation's revenue guidance for the fourth quarter is above market consensus, with Azure expected to maintain a y...