Morgan Stanley issued a research report stating that Microsoft (MSFT.US) has enjoyed an exceptionally strong start to its fiscal 2027 first quarter, as growth accelerates across the board, AI monetization continues to deepen, and improved infrastructure efficiency unleashes significant operating leverage, leaving the company's current share price at roughly 21 times forecast fiscal 2028 earnings, an attractive valuation. Accordingly, the bank maintained its "Overweight" rating on Microsoft and raised its price target by 8.3%, from $600 to $650.
Morgan Stanley noted that Microsoft's first-quarter results comprehensively beat market expectations, with total quarterly revenue surging 19% year on year to $92.3 billion and operating profit also rising 21% year on year to $45.9 billion, underscoring that the powerful expansion of Microsoft's cloud business is being converted into actual profit growth with extremely high efficiency.
On the profitability front, the quarterly operating margin held firm at a high level of about 50%, while the gross margin came in at 67.8%, 60 basis points above the consensus market estimate. In terms of core business momentum and AI deployment, Microsoft displayed a strong accelerating trend. Even in the face of delivery delays in third-party computing capacity, the Azure intelligent cloud business still lifted its year-on-year growth rate at constant currency by 6 percentage points quarter on quarter to 48%, beating market expectations, with second-quarter guidance further pointing to 49% to 50%.
The report said the M365 commercial cloud business, driven by the twin engines of seat growth and higher average revenue per user (ARPU), accelerated its constant-currency growth to 18%, with guidance for the next fiscal quarter seen at about 19%. In addition, Foundry revenue more than tripled year on year, and the number of paying Fabric customers also surged by more than 50%, marking the further formation of an enterprise-grade AI ecosystem flywheel.
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