Microsoft Stock Surges on $665 Target and SpaceX Cloud Talks

Microsoft's stock surged above $530 after Melius Research upgraded its target price to $665, citing potential growth in infrastructure sales. Analyst Ben Reitzes raised the stock from Hold to Buy, emphasizing the company's expanding infrastructure needs as a key driver for stronger sales. The bullish outlook was further supported by GoalVest Advisory's recent increase in its Microsoft position by 76,981 shares.

Microsoft is exploring leasing computing capacity from SpaceX to address its ongoing shortage of computing resources. Discussions between the two companies took place during the summer, though the current status remains uncertain. SpaceX is rapidly expanding its infrastructure, aiming to increase its computing capacity to between 5 GW and 10 GW next year. This potential partnership highlights both the opportunity and cost of Microsoft's expansion.

Despite strong financial results, Microsoft faces significant challenges. Fiscal 2026 revenue increased 18% to $331.8 billion, while net income jumped 31% to $133.7 billion. However, capital expenditures remain high, with $41 billion spent in the fiscal fourth quarter alone. Operating cash flow reached $55.4 billion, but free cash flow was only $19.6 billion. The company is also restructuring its gaming division, announcing plans for approximately 3,200 job reductions during fiscal 2027.

Competition from Google Workspace adds pressure to Microsoft's growth strategy. Some businesses are reassessing Microsoft 365 due to pricing and competing productivity tools. While Microsoft's enterprise security and cloud offerings remain advantages, stronger competition could increase pricing pressure and provide customers with more alternatives. The $665 target gives Microsoft shares significant upside, but the company must prove that its infrastructure investments can generate sufficiently strong returns before the stock can sustain a move toward that target.