Microsoft's Stock Rebound Has Further to Run, Melius Says

Microsoft shares have staged a sharp recovery, and according to Melius Research, the move may be only partway done.

The firm's argument rests on a shift in investor mood. As worries grow about how much money is being poured into artificial intelligence, and how quickly that spending will pay off, buyers are looking for ways to stay exposed to the theme without taking on the most extreme risks. Melius sees Microsoft as a natural landing spot for that demand.

The appeal is straightforward. Microsoft has a huge, established base of business customers, steady subscription revenue and a cloud arm that already generates serious cash. That gives it a cushion many AI-focused rivals lack. Rather than depending on a single breakthrough product, it can fold AI features into software that companies already pay for, and it can sell the computing power behind the technology through Azure.

In that framing, Microsoft offers a lower-volatility route into AI. Investors who worry that chipmakers and pure-play AI names have run too far, too fast, can rotate into a company whose earnings do not hinge entirely on the boom continuing at its current pace.

The stock's rebound reflects that thinking. After a period when sentiment toward the company soured, buyers have returned, and Melius contends the repricing has not yet caught up with the strength of the underlying business. The firm believes the shares still have room to climb as more money moves toward what it sees as safer AI exposure.

There are caveats. Any stock that has rallied hard is vulnerable if growth in cloud revenue slows or if heavy capital spending on data centers weighs on margins. Investors will also be watching whether customers keep paying for AI add-ons at a scale that justifies the investment. And a defensive label does not make a megacap immune to a broader market pullback.

Still, the Melius view captures a theme that has gained traction on Wall Street: in a market wary of AI excess, the winners may be the companies that can profit from the technology without betting the whole business on it. For now, the analyst believes Microsoft fits that description better than most.