The share price of Microsoft (MSFT 1.13%) is down 23% year to date. The sell-off appears to stem from concerns about growing artificial intelligence (AI) infrastructure spending and broader uncertainty across the software industry around the rise of AI agents and their impact on Microsoft's business.
However, most Wall Street analysts are not convinced that Microsoft is losing its competitive edge. The average rating is still a buy, with an average price target of $587, implying over 50% upside. Against that backdrop, here's what analysts think the market may be missing.
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Microsoft is enjoying momentum in key areas
The analysts who have weighed in recently with positive takes are pointing to the same opportunities for Microsoft, which center on its Azure enterprise-grade cloud platform and demand for AI features integrated across the company's Office software (Microsoft 365). Jefferies analyst Brent Thill recently reiterated a buy rating on the stock with a $675 price target -- one of the most bullish calls on the Street. Thill and other analysts are bullish on Microsoft Azure, the company's enterprise cloud service. Azure continues to gain share of the cloud market, with revenue up 39% year over year last quarter.
The debate for investors is whether demand for Microsoft 365 will remain strong as AI agents become more widespread. Teams of AI agents working autonomously in the background can write their own software code, enabling companies to potentially do more with fewer paid seats (or licenses) for enterprise software, which poses a risk to Microsoft. But so far, the data suggests Microsoft is holding up just fine and may even be benefiting from agentic AI. Microsoft's Copilot has become a daily utility for users, with the average number of conversations doubling year over year last quarter.
Moreover, Microsoft reported that the number of customers with at least 35,000 seats tripled year over year. That's an important signal -- rather than shrinking seat counts, large organizations appear to be leaning further into Microsoft's ecosystem, with Copilot serving as a catalyst.
NASDAQ: MSFT
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Should you buy the dip?
No one can know with certainty what the software landscape will look like in five years. Still, Microsoft executives remain positive about the opportunities ahead.
At a recent conference, CEO Satya Nadella said the next version of Office could be "headless" -- meaning Office could become a tool used by AI agents working in the background rather than exclusively by human users. Nadella believes this could expand the addressable market for Microsoft 365, implying more revenue potential.
The stock's forward price-to-earnings multiple is now 22, which already prices in risks of slowing revenue growth. But if Nadella is right and AI ultimately expands rather than compresses Microsoft's growth potential, the recent sell-off in the stock could present a compelling buying opportunity.
