Jefferies Puts Microsoft (MSFT) Stock at the Top of AI Picks With $675 Target

TLDR

• Jefferies reiterated a Buy rating on Microsoft with a $675 price target
• Analyst Brent Thill says Microsoft’s Azure and M365 platform gives it a strong edge in enterprise AI spending
• AI margins are tracking ahead of cloud margins at a similar stage of development
• Microsoft trades at ~21x FY2027 earnings, below its 10-year average of 23.5x
• The average Wall Street price target of $594.02 implies ~44.6% upside from current levels

Microsoft (MSFT) has gotten a fresh vote of confidence from Jefferies, with analyst Brent Thill saying the company is best placed to win the enterprise AI race. He kept his Buy rating and $675 price target in place after meeting with Microsoft’s head of investor relations.

Microsoft Corporation, MSFT

Thill’s core argument is straightforward: Microsoft doesn’t need to own the best AI model. It just needs to own the platform where AI models are built, deployed, and managed — and it already does.

The company’s combined Azure and Microsoft 365 footprint puts it at the center of how large businesses are thinking about AI. With over 450 million paid M365 users, Microsoft already sits inside the daily workflows of a huge chunk of the enterprise world.

Thill said AI tools could actually grow the total addressable market for M365, rather than simply replace existing features. As firms layer AI into everyday software, they tend to spend more — not less.

AI Margins Are Tracking Ahead of Cloud

One detail that caught the analyst’s attention: AI margins are running ahead of where cloud margins were at a comparable stage. That’s a good sign for how the business might scale as demand continues to build.

Thill also pointed to the growing role of AI agents — software that can work across multiple applications and call APIs to complete tasks. Microsoft’s platform sits in the middle of that infrastructure, which could mean more revenue per user over time.

The model-agnostic approach matters here. Microsoft isn’t betting the farm on one AI model winning. It’s building the environment where any model can operate — and charging for access to that environment.

Valuation Still Has Room to Run

At around 21 times expected FY2027 earnings, Microsoft is trading below its 10-year average multiple of 23.5x. Jefferies thinks that gap is hard to justify given how much stronger Microsoft’s AI position is today compared to where it stood in 2016.

The firm also noted the stock shouldn’t trade near its 10-year trough of around 15x, given the platform expansion since then.

Wall Street broadly agrees. Of the 36 analyst ratings issued over the past three months, 33 are Buys and three are Holds. The average price target sits at $594.02, implying roughly 44.6% upside from current levels.

Microsoft’s PEG ratio of 0.88 also suggests the stock is priced attractively relative to its growth rate. InvestingPro flagged the stock as undervalued based on its Fair Value model, with 17 analysts revising earnings estimates upward for the coming period.

On the regulatory side, Microsoft Japan’s offices were recently visited by Japan’s antitrust authority over concerns about Azure cloud practices — specifically whether it was making it harder for customers to switch to rival services. No findings have been published yet.

Thill’s $675 price target remains among the higher end of Street estimates on MSFT.

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