One Wall Street analyst sees 23% upside for Microsoft stock

Microsoft （Nasdaq Resonancestock (market)(Code: MSFT)After rocketing in 2023, the stock price continued to hit new highs in 2024 and has risen 10% to date.Morgan Stanley ) analyst Keith Weiss sees further share price gains as the company continues to capitalize on growth opportunities in artificial intelligence (AI) services and the broader cloud computing market.

Morgan Stanley's investment arm raised its price target on the stock from $465 to $520, 鈥竝taining a Hold (Buy) rating on the stock. That's an increase of nearly 26% from the current price of $413.

Is Microsoft Stock Worth Buying?

Microsoft is doing well in capturing the huge opportunity in AI services. Revenue in the most recent quarter grew 161 TP3T year-over-year, with Microsoft Azure and other cloud services growing 281 TP3T on a constant rate basis.

Microsoft Azure transactions are growing to more than $1 billion. More than half of the Fortune 500 companies are now using Azure's generative AI services powered by OpenAI.

Morgan Stanley believes that growing demand for AI services will fuel strong growth over the next five years. Specifically, the firm expects Microsoft to post annualized revenue growth of 141 TP3T and earnings growth of 161 TP3T by FY2029, which seems reasonable given Microsoft's history of double-digit growth. Assuming the stock's valuation remains unchanged, this is enough to translate the stock price.

However, after last year's run-up, the price-to-earnings ratio is already high. For investors who have held the stock for many years, it could still bring in a return, but the stock's average P/E over the past 10 years is 32 times, and the current P/E exceeds this year's earnings estimate of 35 times.

The current consensus estimate on Wall Street is for Microsoft to report earnings of $12.52 for the 2025 fiscal year ending in June. Assuming a price-to-earnings ratio of 40 times, that would put the stock at $500, which is below the analysts' target price. The analyst's price target may be a bit too optimistic.

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John Ballard does not own any of the stocks listed above. the Motley Fool holds shares of recommended Microsoft Corporation. the Motley Fool recommends the following options: long January 2026 $395 call options on Microsoft and short January 2026 $405 call options on Microsoft. the Motley Fool has a disclosure policy.

A Wall Street Analyst Says Microsoft Stock Has 23% Upside was originally published by The Motley Fool.