Morgan Stanley Backs Microsoft at $600, Flags OpenAI Risk
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- Morgan Stanley reiterated an overweight rating on Microsoft with a $600 price target, based on a 25x multiple and FY2028 EPS estimates, with analysts Adam Wood and Josh Baer citing upcoming Q4 results as a positive catalyst.
- Microsoft's Azure is projected to achieve approximately 100% year-over-year growth in Q4 FY2026 (18% quarter-over-quarter), following 39% constant-currency Azure growth and ~1% total revenue upside in Q3, as the company plans to roughly double its datacenter footprint over two years.
- Microsoft has spent more than $100 billion on OpenAI investments and data center/hosting costs, per corporate development head Michael Wetter's testimony in Elon Musk's lawsuit against OpenAI.
- Microsoft revised its OpenAI partnership in April, no longer holding an exclusive model license, and was absent from OpenAI's latest funding round, while OpenAI's GPT-5.6 remains the preferred model in Microsoft 365 Copilot despite Microsoft's own Copilot Cowork and MAI model launches.
- OpenAI's net loss ballooned from $5.09 billion in 2024 to $38.53 billion in 2025, per leaked audited financials verified by the Financial Times, and its planned IPO is now in question after Apple filed a trade secret lawsuit on July 10.
- Alphabet and Tesla both reported disappointing earnings on July 22, with both stocks dropping the following day, setting a cautious tone as Microsoft and Meta prepare to report on July 29 amid concerns that hyperscaler capex is hurting free cash flow.
- Microsoft faces potential excess datacenter capacity risks from the release of Kimi K3 open-weight models and Meta's planned entry into the cloud/AI capacity market, per the Morgan Stanley note.
Why it matters: Morgan Stanley is making a contrarian bullish bet that Microsoft's record $100B+ OpenAI exposure will pay off through Azure growth, but the bank itself flags that the partnership is fraying, OpenAI's losses are exploding sevenfold year-over-year, and competitive pressures from open-weight models like Kimi K3 and Meta's cloud push could leave Microsoft with stranded capacity. With Alphabet and Tesla already disappointing, Microsoft's July 29 print becomes the key test of whether the hyperscaler capex binge actually converts to revenue or just burns cash.
