Melius Upgrades Microsoft to Buy With $665 Target, Betting AI Anxiety Steers Buyers to a Trusted Vendor

Melius Research upgraded MSFT to Buy from Hold on October 5 and set a $665 price target, and the stock rose 2% to $527.29 in early trading. Rival cloud names barely moved: AMZN slipped 0.2% and GOOGL rose 0.2%, which suggests the buying was aimed at Microsoft specifically rather than the AI trade as a whole.

The Melius thesis is that corporate fear of AI can itself drive software demand. In the firm's view, enterprise buyers worried about AI security and governance risks default to the vendor they regard as the responsible operator, and Melius described Microsoft as 'the adult in charge'. The $665 target is the high end of the Street's recent calls: SentiSense consensus data shows an average target of $578.82 across 53 analysts, with a range of $440 to $870.

24/7 Wall St., which reported the upgrade, pointed to Microsoft's fiscal fourth quarter as supporting evidence: Azure revenue grew 43%, and commercial remaining performance obligations, contracted revenue not yet recognized, rose 84% to $678 billion. The company also reported more than 30 million paid Microsoft 365 Copilot seats. The same report flagged the offsets: Microsoft expects fiscal 2027 capital expenditures of about $175 billion, fourth-quarter free cash flow fell 23.2%, and the stock trades at 25 times forward earnings.

What to watch: Microsoft's fiscal first-quarter report, where guidance calls for revenue of $89.85 billion to $90.95 billion, is the first test of whether AI-trust demand shows up in results. A second question is whether the upgrade-driven gain holds once the initial reaction fades, since rating-driven rallies in the stock have previously met selling around similar levels.