UBS Group AG: Microsoft Corporation (MSFT.US) needs to improve the prospects of its office software to boost its stock price. Downgrade target price to $510.

UBS Group AG recently stated that Microsoft Corporation's (MSFT.US) 365 and Copilot products need improvement in market prospects in order to drive up the stock price of this tech giant. Analyst Karl Keirstead wrote in a report to clients, "We maintain a buy rating on Microsoft Corporation, currently based on a price-to-earnings ratio of 19 times its non-GAAP earnings per share for fiscal year 2026. But we also acknowledge that for this stock to truly achieve a higher valuation, market prospects surrounding M365/Copilot need to improve." Therefore, Keirstead lowered the target stock price from $600 to $510. Keirstead explained that recent moves by OpenAI and Anthropic to enter the knowledge work field have hit a "sore spot" for Microsoft Corporation, but investor focus has shifted to the sustainability of 365 and Copilot and the growth they can bring. Keirstead stated that, following meetings with Microsoft Corporation's investor relations team, the Windows giant highlighted a rebound in usage rates and user numbers in the second quarter. Keirstead added that recent initiatives such as Copilot Cowork, the new E7 package, and leadership changes, "indicate a more proactive stance within Microsoft Corporation and demonstrate a sense of urgency." Keirstead explained that, in addition to Office 365 and Copilot, Microsoft Corporation is "very optimistic about demand for Azure," but did not provide the latest information on revenue growth or capacity expansion in this area, as previously disclosed to investors by Microsoft Corporation.