Is Microsoft's Stock Set for a Breakout? This Analyst Says a Major Inflection is in the Cards.

Microsoft shares have slumped this year but a Bernstein analyst thinks the stock is due for a meaningful turnaround in the coming quarters

Microsoft reports earnings next week.

Microsoft's stock is destined to break out, according to Bernstein analyst Mark Moerdler. The question is when.

The company is gearing up for its June-quarter earnings report next week, and while Moerdler expects Microsoft to deliver a "solid quarter," he's not ready to say that will mark a major turning point for the stock, he said. Whether Microsoft's report will cause "bear concerns" to dissipate is still up for debate.

More broadly, he said, he believes Microsoft is a "quality business with little downside," and he predicted that the stock's breakout will take place in the coming quarters. His $646 target price implies 62% upside from Tuesday's close.

Shares of Microsoft $(MSFT)$ have fallen 16% so far this year, reflecting scrutiny from analysts and investors over the company's enormous capital expenditures and the implications of management's decision to spread compute resources across various business priorities instead of doubling down on the cloud.

That said, the stock is up 13% from its June 25 low.

Moerdler wrote that, in order to justify a higher stock multiple, Microsoft needs to offer a "strong indication" that revenue from the company's Azure cloud segment justifies all of the company's spending growth. Furthermore, the company needs to show a stabilization of Azure's gross margins.

Azure is especially constrained by capacity of both central processing units and graphics processing units, meaning that the company doesn't have enough chips to satisfy all of its demand. On top of that, Microsoft must deal with inflated memory prices.

Moerdler also noted that investors will be looking for a "visible path" to higher free-cash-flow margins.

See also: Meet Kimi K3, the newest Chinese AI model haunting Silicon Valley

While Microsoft has been a frustrating stock recently, there's general optimism from Wall Street analysts. D.A. Davidson's Gil Luria recently lauded the company's Copilot AI assistant for its ability to meet demand for an "orchestration layer" below frontier models. This allows users to switch AI models and limit disruption to their business.

Moreover, on Tuesday, Morgan Stanley analyst Adam Wood assumed coverage of Microsoft with an overweight rating and a $600 price target, saying Azure and Copilot are both set to "inflect."

-Hannah Pedone

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

July 22, 2026 10:04 ET (14:04 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.