Bank of America Gives Microsoft Buy Rating, $500 Target
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- Microsoft stock has fallen about 23% year‑to‑date, with a 10% single‑day drop after its Q2 fiscal 2026 earnings report on Jan. 28, closing at $433.55 the day after a $481.63 close.
- Bank of America analyst Tal Liani and his team reinstated coverage of Microsoft stock, assigning a buy rating and a $500 price target, based on a 24× 2027 P/E multiple.
- Microsoft’s AI backlog is sizable, with roughly 45% of its $625 billion commercial performance obligations tied to OpenAI, according to CFO Amy Hood; analysts say demand is real, supply is the bottleneck.
- Microsoft expects near‑term free‑cash‑flow margins to stay pressured due to elevated capital expenditures, but anticipates that AI infrastructure rollouts (e.g., Fairwater data center) will accelerate conversion of performance obligations into revenue.
- Microsoft is adjusting Copilot integration after user backlash, reducing entry points in apps like Snipping Tool, Photos, Widgets, and Notepad, as part of a broader effort to focus on useful experiences.
- Microsoft’s AI adoption metrics show only 3.3% of Microsoft 365/Office 365 users who engage with Copilot Chat actually pay for it, prompting the company to embed Copilot more broadly to increase its user base.
Why it matters: Investors gain a clear upside thesis as BofA’s $500 target implies a roughly 15% upside from current levels, while Microsoft’s AI backlog and heavy capex pressure near‑term free‑cash‑flow margins, and Windows users see reduced Copilot intrusions.
