Microsoft has attractive risk reward profile 'not reflected in shares:' Morgan Stanley
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Microsoft (NASDAQ:MSFT) shares have declined nearly 30% year-to-date, but after a meeting with some of the company's executives, investment firm Morgan Stanley said the tech giant has an attractive risk-reward profile that is not currently "reflected in [its] shares."
Analyst Keith Weiss, who has an overweight rating and a $354 price target on Microsoft (MSFT), noted that the Redmond, Washington-based tech giant has built an expanding solution portfolio. And with technology executives across the globe keeping up their mindset to consolidate their vendors, Microsoft (MSFT) is able to "sustain strong demand," while also increasing room for additional operating leverage.
Weiss noted that Microsoft (MSFT) is likely to see "durable" double-digit top line growth in commercial segments; improving gross margins as it works to improve efficiencies and benefits from a positive mix shift; its operating expenses have slowed down even as gross profit dollars have grown; and the company as a strong capital return program that should help returns grow in the high teens on a compound annual basis through fiscal 2025.
The analyst also pointed out strength in Microsoft's (MSFT) Azure cloud computing platform, as commercial bookings continue to remain strong, due in part to the hybrid cloud. 
"With CIOs increasingly looking to focus spend with fewer vendors and Microsoft topping the list of consolidation beneficiaries, management continued to sound bullish on strong execution against its cloud opportunities," Weiss wrote in a note.
While Weiss pointed out that Microsoft (MSFT) could be negatively impacted by the weakening PC Market, that is a near-term issue and the longer growth trend for Windows is expected to remain "stable."
"With an emphasis on commercial and high end PCs, Windows OEM revenue should be resilient but not immune to the weakness in the PC market," Weiss added, while lowering Windows OEM-related revenue to a 12.5% year-over-year decline in the first-quarter, down from a prior view of an 8% decline.
The analyst also relayed that Microsoft's (MSFT) management was excited about its future in gaming, but the focus right now is on the Activision Blizzard (ATVI) acquisition and the pending in-depth reviews from regulators in the U.K. and Europe.
The company is also likely to benefit from an increase in subscription growth, both for its Game Pass service, as well as the continued rise of Office 365.
Earlier this month, Microsoft (MSFT) raised its dividend by 10% to 68 cents per share per quarter.