Microsoft stock continues to rally, but some analysts are turning cautious

Shares of Microsoft moved higher on Thursday, extending gains from the previous session even as broader US equity markets showed signs of weakness.

The stock rose 0.94%, building on a nearly 5% surge recorded on Wednesday.

The advance came despite declines in major indexes, with the S&P 500 and Nasdaq Composite hovering just below the flatline, while the Dow Jones Industrial Average slipped 38 points, or 0.1%.

Wednesday’s rally was partly driven by continued optimism from KeyBanc, which reiterated its Overweight rating on Microsoft and maintained a $600 price target.

The firm’s bullish stance reflects confidence in Microsoft’s positioning across cloud computing and artificial intelligence, even as the broader market grapples with mixed signals.

Analysts turn cautious ahead of earnings

Despite the recent momentum, sentiment among Wall Street analysts appears more divided ahead of Microsoft’s third-quarter earnings report, scheduled for April 29.

TD Cowen lowered its price target on Microsoft to $540 from $610 while maintaining a Buy rating.

The firm expects limited upside in Azure growth in the near term, citing constraints around GPU capacity allocation.

According to TD Cowen, a significant portion of computing capacity is being directed toward internal research and development, particularly for advanced AI model development.

As a result, Azure growth is expected to remain steady rather than accelerate.

The firm added that rising capital expenditures, combined with stable cloud growth, could keep Microsoft’s stock trading within a range in the near term.

However, it noted potential upside if the narrative around Microsoft’s Copilot AI tools improves.

Focus on Copilot and cloud growth

Investor attention is increasingly centred on Microsoft’s AI strategy, particularly the adoption of its Copilot tools and the trajectory of its Azure cloud platform.

TD Cowen indicated that while Azure growth may be capped in the near term, the company’s earnings report could shift focus toward AI-driven opportunities and capital spending trends.

Similarly, Baird analyst William Power recently lowered his price target on Microsoft to $500 from $540, while maintaining a Buy rating.

Power cited cautious sentiment around Microsoft’s core software business and increasing competition in AI, particularly in the Copilot segment, where rivals continue to advance rapidly.

He also noted that many investors are waiting for a clear acceleration in Azure growth, which may not materialise in the upcoming quarter.

Despite the near-term caution, Power maintained a constructive outlook on Microsoft’s fundamentals heading into earnings.

He expects strong Azure performance, continued adoption of Copilot, and overall earnings growth to help address investor concerns.

According to Power, Microsoft remains attractive at current levels, even as the market seeks clearer evidence of sustained growth.

Microsoft’s recent share price gains highlight ongoing confidence in its long-term AI and cloud strategy.

However, mixed analyst views underscore the importance of execution, particularly in scaling AI offerings and sustaining cloud momentum.