D.A. Davidson upgraded Microsoft (MSFT, Financial) to Buy on Thursday, increasing its price target by $25 to $450. The brokerage cited Microsoft's shift to a more disciplined capital expenditure approach and its strong positioning among the "Mag6" in the face of a weakening consumer market.
Microsoft had been the worst-performing Mag6 stock in the past six months following Davidson's September downgrade. However, the firm now sees the stock as accurately reflecting the previous capital spending surge. Analysts pointed to Microsoft's move to offload lower-priority capital expenditures to partners like CoreWeave, Oracle (ORCL, Financial), and SoftBank (SFTBY, Financial).
The report suggests Microsoft is scaling back OpenAI training capacity in its data centers, as the benefits of pretraining models have reached a plateau. A disclosure from Nvidia (NVDA, Financial)-backed AI firm CoreWeave further reinforced this view, revealing that Microsoft accounted for 62% of its customer base—suggesting Microsoft is leveraging CoreWeave for overflow workloads.
D.A. Davidson also sees Microsoft as the most resilient of the Mag6 in the event of a consumer slowdown, reducing earnings risk compared to its peers. Meanwhile, the U.S. Federal Trade Commission is continuing its antitrust probe into Microsoft's AI ventures, Azure cloud business, and enterprise software operations.
