Melius Upgrades Microsoft to Buy on AI Security Spending Boost

Melius Research has upgraded Microsoft (MSFT) to a Buy rating, citing rising corporate concerns about artificial intelligence as a key driver for the software giant's security and governance tools. The firm set a price target of $665, suggesting about 28% upside from current levels and representing approximately 22 times the new fiscal 2029 earnings estimate.

Analyst Ben Reitzes highlighted a structural shift in enterprise AI adoption, with companies increasingly relying on platforms like Microsoft to manage AI models and implement security controls. He noted that Microsoft, under CEO Satya Nadella, is well-positioned to capture this spending. Enterprise resellers have reported immediate interest in Microsoft's security offerings following recent public statements from AI company executives that amplified concerns about model risk.

Melius expects Azure growth to accelerate past 50% by the fourth quarter of fiscal 2027. Reitzes also sees improving pricing power across Microsoft's portfolio, including the E7 suite and Fabric. The firm revised its earnings per share estimates, raising fiscal 2027 earnings by about 2%, fiscal 2028 by about 4%, and initiating a fiscal 2029 estimate of $30.77, roughly 7% above consensus.

The upgrade comes as Microsoft prepares to report first-quarter fiscal 2027 results on October 27, with its Ignite conference following in mid-November. Reitzes characterized both events as potential catalysts. Additionally, Ryan Roslansky, the executive vice president overseeing M365 applications, is departing the company. Piper Sandler also raised its price target on Microsoft, pointing to growth in Copilot and Cowork, and maintained an Overweight rating.