Microsoft Rises 2% as Melius Research Upgrades to Buy With $665 Target; Amazon and Alphabet Hold Steady

A new Melius Research call argues that corporate fear of artificial intelligence (AI) can itself drive software demand, with Microsoft (NASDAQ:MSFT | MSFT Price Prediction) shares carrying that argument. Microsoft stock is up 2% to $527.29 after Melius Research upgraded the shares to Buy from Hold early in the session. Melius Research paired the rating change with a $665 price target on Microsoft stock, a call that lands at the center of the mega-cap AI trade.

Rival mega-cap cloud stocks are close to unchanged. Amazon (NASDAQ:AMZN) stock is down 0.2%, while Alphabet (NASDAQ:GOOGL) stock is up 0.2%.

The Technology Select Sector SPDR ETF (NYSEARCA:XLK) is up 0.2%, a gain that partly reflects Microsoft itself, since the company made up 8.4% of the fund’s net assets as of June 30. Furthermore, as a gauge of tech stocks in general, the Invesco QQQ Trust (NASDAQ:QQQ) is up 0.1%.

Melius Research Calls Microsoft the Adult in Charge

Melius Research’s thesis rests on enterprise anxiety about how AI gets deployed. In the firm’s view, corporate buyers worried about AI security and governance risks default to the vendor they regard as the responsible operator, and Melius Research described Microsoft as the adult in charge.

Microsoft’s latest quarterly results give the thesis some support. For fiscal Q4 2026, Microsoft’s Azure business grew 43%, and its commercial remaining performance obligations (contracted revenue not yet recognized) rose 84% to $678 billion. That backlog fits the Melius Research picture of buyers settling on a trusted vendor.

Why Microsoft Is Moving on Its Own

Amazon and Alphabet sitting close to unchanged suggests the buying is aimed directly at Microsoft. Microsoft trades at 25x forward earnings, so the upgrade lands on a stock whose valuation already leans on continued AI execution.

Comments from the July 29 earnings call reinforce the Melius Research case for Microsoft. Satya Nadella, speaking as Microsoft’s chairman and chief executive, declared, “I’ve never been more confident in Microsoft’s opportunity to drive durable long-term growth and ensure the benefits of AI flow broadly.” The company reported more than 30 million paid Microsoft 365 Copilot seats and nearly 40 million agents registered with Agent 365 in the two months after that product’s launch.

Microsoft is also pressing the security angle through its own AI models. On the call, the company stated that its MAI Cyber One Flash model, combined with a multi-agent security framework, outperformed a much larger model “at half the cost.”

History offers a caution, since rating-driven rallies in Microsoft stock have repeatedly run into selling around the same price levels. Heavy spending adds pressure, as Microsoft expects its fiscal 2027 capital expenditures to reach approximately $175 billion, and its Q4 free cash flow fell 23.2%. The power, cooling, and networking suppliers soaking up that expansion are the subject of a free report here.

What to Watch Next

Microsoft’s next quarterly report offers the clearest test of the upgrade thesis. The company’s guidance calls for Q1 FY2027 revenue between $89.85 billion and $90.95 billion, and enterprise demand tied to AI trust would need to show up in its results. The key question is whether Microsoft stock holds its upgrade-driven gain once the initial reaction to the Melius Research call fades.

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