Morgan Stanley: Microsoft's leadership in generative AI is "clear," with continued strong spending intentions for Azure and M365

Zhitong
2026.07.17 03:21

Morgan Stanley released a research report, stating that Microsoft's leadership position in the generative AI field is clear. Data shows that demand for Microsoft 365, Copilot, and Azure business is strong, with CIO spending intentions continuing to strengthen. It is expected that Microsoft's spending growth rate could reach as high as 7.6% in the coming year, and it remains the main supplier for acquiring incremental shares in GenAI, with Azure growth being sustainable

According to the Zhitong Finance APP, Morgan Stanley released a research report on Thursday stating that Microsoft's (MSFT.US) leadership in the field of generative artificial intelligence (GenAI) is "very clear," citing "strong demand trends" for Microsoft 365, Copilot, and Azure cloud services as evidence.

Analyst Josh Baer pointed out in a report to clients that, according to the second-quarter Chief Information Officer (CIO) survey, Microsoft has "successfully maintained its leading position in core spending intentions, particularly in capturing GenAI spending share."

Regarding Azure, 62% of CIOs expect to increase related spending in the next 12 months, up from 57% in the second-quarter survey of 2025. Spending intentions for Microsoft 365 and Office 365 have also "significantly increased," with 65% of CIOs expecting to increase spending, compared to 46% and 55% in the second quarters of 2024 and 2025, respectively.

In the longer term, product tiers such as E1, E3, E5, and E7 continue to be favorable for Microsoft. 50% of CIOs expect to use the E5 tier next year, while 21% indicated they would use the higher-priced E7 tier.

On the other hand, spending on on-premises server products is expected to decline by 0.8% over the next three years, whereas a survey conducted in the fourth quarter of 2025 showed a 0.9% increase.

Furthermore, CIOs expect the highest year-over-year spending growth for Microsoft (relative to other vendors) at 7.6%, up from 7.3% in the fourth-quarter survey of 2025. The survey also revealed that 72% of CIOs expect to increase net spending on Microsoft tools, higher than the 67% reported in the fourth-quarter survey of 2025.

Baer added, "Additionally, Microsoft remains the primary vendor for capturing incremental GenAI spending share in 2026 and the next three years. We believe that the sustainability of Azure growth, the improvement in momentum for M365 commercial cloud (and Copilot), and earnings per share growth are undervalued by the market at the current 16 times the 2028 fiscal year GAAP price-to-earnings ratio."

Baer has given Microsoft an "overweight" rating with a target price of $650.

Microsoft will release its fourth-quarter financial report for the fiscal year 2026 after the U.S. stock market closes on July 29

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