Melius Research Upgrades Microsoft to Buy With $665 Price Target

Microsoft's stock surged by 2% to $527.29 after Melius Research upgraded the company to a Buy rating from Hold and set a $665 price target. The research firm argues that corporate concerns over AI security and governance could drive demand for Microsoft's software, positioning it as the trusted vendor in the market.

The upgrade comes as Microsoft's latest quarterly results show strong growth in its Azure business, which expanded by 43%, and a significant increase in commercial remaining performance obligations, up 84% to $678 billion. These figures align with Melius Research's view that companies are turning to Microsoft for reliable AI solutions.

While Microsoft's stock gained momentum, rivals Amazon and Alphabet saw minimal movement, with Amazon down 0.2% and Alphabet up 0.2%. The Technology Select Sector SPDR ETF (XLK) rose by 0.2%, partly due to Microsoft's influence, as the company represents 8.4% of the fund's net assets.

Microsoft's CEO, Satya Nadella, expressed confidence in the company's AI-driven growth during the July 29 earnings call, highlighting over 30 million paid Microsoft 365 Copilot seats and nearly 40 million agents registered with Agent 365. However, the stock's rally faces potential challenges, including heavy capital expenditures and a 23.2% drop in free cash flow.