Microsoft (MSFT) Stock: Bernstein Sees 62% Upside — But There’s a Catch

TLDR

• Bernstein reiterates Outperform rating on Microsoft with a $646 price target, implying 62% upside from Tuesday’s close.
• MSFT has fallen 16% so far in 2026 but is up 13% from its June 25 low.
• Azure cloud growth is being held back by chip shortages and inflated memory prices.
• Bernstein says a breakout could come within the next few quarters but is not calling this upcoming earnings as the catalyst.
• Microsoft reports earnings on July 29; options data suggests a potential stock move of 6.7%.

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Microsoft has had a rough 2026. The stock is down 16% on the year, weighed down by questions over its heavy capital spending and how it’s spreading compute resources across different business priorities rather than going all-in on cloud.

Microsoft Corporation, MSFT

But Bernstein analyst Mark Moerdler isn’t ready to give up on it. He’s kept his Outperform rating and set a $646 price target on MSFT — that’s a 62% jump from where the stock closed on Tuesday.

MSFT traded at around $398 on Tuesday, making that target a big ask. But Moerdler’s case rests on the idea that Microsoft is a “quality business with little downside” at current levels. The stock trades at a P/E of 23.32 and a PEG ratio of 0.79, which Bernstein views as undervalued.

The company is due to report earnings on July 29. Options markets are pricing in a move of about 6.7% in either direction.

What Needs to Happen for Azure

The cloud business is the key piece of this story. Azure has been constrained on two fronts: not enough CPUs and GPUs to meet demand, and inflated memory prices eating into margins.

For the stock to get a higher multiple, Moerdler says Microsoft needs to show that Azure revenue growth justifies all the spending, and that gross margins in the segment are stabilizing. Investors will also want to see a clear path toward higher free cash flow margins.

The good news is that some data points are already moving in the right direction. Last quarter, capital expenditures — excluding component inflation — grew slower than Azure revenue. AI gross margins have also stabilized and are expected to improve from here.

Moerdler says full validation of Microsoft’s AI position could take one to two more quarters, or it could happen in the coming quarter. He’s not calling it either way.

Other Analysts Weigh In

Bernstein isn’t alone in its cautious optimism. Morgan Stanley’s Adam Wood recently started coverage with an Overweight rating and a $600 price target, flagging Azure and Copilot as areas set to “inflect.”

Truist Securities also has a Buy rating on MSFT with a $575 target, pointing to long-term Azure and AI growth. Oppenheimer is Outperform with a $515 target, citing healthy demand and solid AI business performance.

D.A. Davidson’s Gil Luria praised Microsoft’s Copilot for its role as an “orchestration layer” that lets users swap between AI models without disrupting their business workflows.

Street expectations going into the July 29 print are described by Bernstein as “muted” — a good quarter is expected, but not a breakout one.

Microsoft’s earnings report on July 29 will cover the fiscal fourth quarter, with all eyes on Azure growth and any update on AI margin trends.