Melius Upgrades Microsoft to Buy on AI Security Demand

Melius Research has upgraded its rating on Microsoft from Hold to Buy, citing strong demand for AI security and governance solutions in the enterprise sector. Analyst Ben Reitzes noted that Microsoft's stock has surged around 40% since its June low of $353, now trading at $517.53. The firm expects Azure to grow over 50% by the fourth quarter of fiscal 2027, driven by companies opting for secure systems to manage AI models rather than relying directly on AI labs.

The upgrade follows recent concerns about AI risks from industry executives, which has spurred interest in Microsoft’s security offerings. Melius raised its earnings estimates, with fiscal 2027 projections increasing by 2% and fiscal 2028 by 4%. The firm also initiated a fiscal 2029 estimate of $30.77 per share, about 7% above consensus. The new $665 price target represents approximately 22 times the firm’s fiscal 2029 earnings estimate.

In other recent news, Microsoft announced the departure of Ryan Roslansky, the executive vice president overseeing M365 apps. Meanwhile, Piper Sandler raised its price target for Microsoft, citing growth in its Copilot and Cowork services, and maintained an Overweight rating. Bank of America also upgraded its view on the healthcare sector, noting lighter crowding compared to Industrials, which it downgraded due to high positioning in capital expenditure beneficiaries.

Wells Fargo identified Axsome Therapeutics as one of its 13 overweight tactical ideas for the fourth quarter, expecting significant growth in prescription data for Auvelity, a treatment for Alzheimer’s Disease Agitation. Additionally, major global pension funds, including Australia’s Australian Retirement Trust and Canada’s La Caisse, have reduced their US equity holdings, citing concerns over high valuations and market concentration in artificial intelligence companies.