Microsoft is 'underpriced' going into Q1 results, Morgan Stanley says
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Microsoft (NASDAQ:MSFT) is slated to report fiscal first-quarter results on October 24 and Morgan Stanley said it is "underpriced" due to its ability to monetize generative artificial intelligence across its infrastructure and apps.
Analyst Keith Weiss, who has an overweight rating and $415 price target on the Redmond, Washington-based tech giant, said the company is the best positioned in the software space to monetize generative AI, but adoption, especially from larger enterprises, will take time.
"We remain firmly convicted in a large opportunity ahead of Microsoft within Generative AI and the company's strong positioning to execute to that opportunity, however investors must keep in mind the timing of enterprise adoption cycles in setting expectations for upcoming results," Weiss wrote in a note to clients.
Last month, Microsoft said that 365 Copilot would be generally available on November 1.
As such, Weiss said it's unlikely that there will be "much validation" on the pent-up demand for Copilot from Microsoft's management team. 
Weiss also noted that a recent survey suggested that cloud optimization efforts may be "more persistent" than previously thought, though it's still likely that the slowdown is coming to an end. 
"Bottom-line, we are still in the early stages of this innovation cycle, and fundamental momentum is likely to build through FY24," Weiss added, pointing out that buy-side expectations have become "more reasonable" for the upcoming quarterly results.
Investors now expect Azure growth to be between 26% and 27%, compared to guidance of 25% to 26%, with guidance for the next quarter to show "further stabilization" in the rate of a slowdown to 25% to 26%.
Microsoft (MSFT) shares fell 1.1% in early morning trading on Tuesday.

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