UBS analysts maintained a ‘Buy’ rating on Microsoft Corp (NASDAQ:MSFT), while lowering their 12-month price target to $510 from $600, citing investor scrutiny on Microsoft’s M365 and Copilot offerings and broader AI competition.
The firm noted the stock trades at 19 times projected 2026 non-GAAP earnings, trading hands at $370 on Wednesday afternoon.
“At 19x calendar year 2026 non-GAAP EPS we remain ‘Buy’-rated, but acknowledge that the narrative around M365/Copilot needs to improve in order for the stock to really re-rate higher,” UBS analysts wrote.
Investor meetings across Asia and Australia highlighted questions about the growth and durability of Microsoft’s core M365/Copilot business, they noted.
Microsoft pointed to increased Copilot usage in the second quarter and recent initiatives including a new E7 bundle, Copilot Cowork, and leadership changes. UBS said these moves “signal a more aggressive stance and sense of urgency inside Microsoft.”
On the cloud front, Microsoft expressed confidence in Azure demand, with UBS noting, “Microsoft sounded very bullish about Azure demand, including core CPU-based demand that serves as a good read to the likes of Snowflake and Datadog.”
However, the company did not provide guidance beyond the March quarter, and UBS expects GPU mix shifts could continue to weigh on Azure growth. Capital expenditures are projected to rise in fiscal 2027, potentially increasing about 25% from an estimated $145 billion in fiscal 2026.
Valuation metrics remain elevated, with Microsoft trading at 44 times projected free cash flow, 21 times GAAP earnings, and 19 times non-GAAP earnings for 2026.
UBS wrote that while the stock appears reasonably priced, “it may take time for sentiment about M365/Copilot to bend.”
