Microsoft’s $665 target hinges on a new AI advantage Faizan Farooque, Celine Provini Wed, October 7, 2026 at 6:33 PM EDT 8 min read MSFT +0.09% Trade MSFT on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Artificial intelligence has given companies powerful new tools. It's made it more difficult for corporate IT teams to manage such products.
Businesses must choose what those agents can see, what they can do, and how to monitor their behavior as they move from testing AI to allowing autonomous agents to access corporate data and carry out tasks.
According to Melius Research, Microsoft (MSFT) may benefit from that issue.
Melius analyst Ben Reitzes upgraded Microsoft to Buy from Hold and raised his price target to $665 from $465, according to Barron's. Reitzes argued that rising demand for AI security and governance could strengthen Microsoft's position as companies look for trusted systems to manage models and agents.
The theory extends beyond Microsoft's current position as a leading provider of cloud computing capacity.
With Azure, Microsoft 365, and its cybersecurity technologies, Microsoft is already present in many major corporations. These current connections may increase in value if companies desire a single platform to control how AI interacts with their data and personnel.
This gives investors another opportunity to profit from the AI boom: helping businesses maintain control over the technology after they implement it.
The availability of improved models and sufficient processing power to run them was a major factor in the early stages of the artificial intelligence boom.
Businesses may now choose models from many developers, and AI agents can access databases, analyze documents, and take actions with less direct human intervention. Although this flexibility increases the technology's usefulness, it also raises additional concerns about security, compliance, and authorization.
According to Melius, Microsoft is in a good position to act as a mediator between business clients and such AI systems.
Instead of granting individual AI suppliers direct access to critical systems, businesses may use a platform that decides which models perform certain tasks, while controlling what agents are allowed to access.
Reitzes believes requirements like these might strengthen Microsoft's corporate position and increase its pricing power, Barron's noted.
The company is already developing products based on that concept. Microsoft said Agent 365 extends existing identity, security, management, and governance controls to AI agents. Just two months after launch, nearly 40 million agents had been registered across tens of thousands of companies.
This provides a quantifiable operational environment for the Melius thesis.
For every business endeavor, Microsoft does not necessarily need to have the best AI model. Instead, it may become the system that businesses use to handle a variety of models.
Additionally, the business may connect a number of its goods around that function. The computer infrastructure is provided by Azure, workplace apps are managed by Microsoft 365, identity is managed by Entra, and risks and access are monitored by Microsoft's security solutions.
Customers may have additional incentives to purchase numerous Microsoft products rather than assembling disparate services from various providers as those systems become more linked.
Because of these factors, corporate AI's increasing complexity may become a competitive advantage for Microsoft, rather than just another technological obstacle.
With significant demand now flowing via Azure, Microsoft is moving into the next stage.
Azure and other cloud-services revenue increased 43% in Microsoft's fiscal fourth quarter ended June 30. Microsoft Cloud revenue rose 27% to $59.3 billion, while Intelligent Cloud revenue increased 32% to $39.3 billion, according to a Microsoft statement.
The demand has been high enough to surpass Microsoft's present computer capability.
According to Microsoft, throughout the quarter, customer demand for Azure remained higher than available capacity. To increase capacity online, the corporation has been making significant investments in data centers and other infrastructure.
Melius anticipates that growth will contribute to yet another acceleration.
The firm forecasts Azure growth of more than 50% by Microsoft's fiscal fourth quarter of 2027, according to Investing.com. Melius also raised its fiscal 2027 and fiscal 2028 earnings estimates following the upgrade.
These projections are significant because investors have been questioning whether Microsoft's massive infrastructure expenditure can provide sufficient returns for the majority of the AI boom.
The company's current backlog indicates that demand is still high.
By the conclusion of the June quarter, Microsoft's commercial remaining performance obligation had increased by 84% to $678 billion. The metric includes contracted commercial income that has not yet been recognized.
Notably, Microsoft claimed that clients outside of frontier-model businesses were the source of all sequential increases in that backlog. The remaining performance requirement rose by 25% when OpenAI was excluded.
This implies that Microsoft's cloud potential extends beyond the expenditures of a few major AI developers.
Microsoft may be able to track expenditure at many levels of the AI stack if companies use Azure more often to manage how agents interact with corporate systems in addition to running models.
Businesses are also adopting the platforms and apps that Microsoft's cloud infrastructure sits atop.
Microsoft CEO Satya Nadella informed investors that Microsoft 365 Copilot has well over 30 million paid seats, and that net seat additions more than doubled sequentially during the June quarter.
In contrast, Microsoft Foundry now has 100,000 users, and platform income has more than quadrupled from the previous year. Using various models, Foundry enables companies to create and manage AI agents and apps while integrating them with corporate data and controls.
These figures contribute to the explanation of the importance of security and governance in the investment argument.
As AI becomes increasingly integrated into routine company processes, agents will more frequently interact with sensitive data and systems. Businesses will need methods for managing permits, conducting audits, and enforcing current security regulations.
Instead of considering AI as a separate product category, the announcement presents a chance to link AI expenditure with the company's well-established enterprise software division.
According to Microsoft, Agent 365 aims to give agents access to the governance, identity, security, and management frameworks that businesses already have. Additionally, the business said that more than 50 billion Copilot contacts had been inspected for compliance reasons using its Purview platform.
As companies give AI systems greater freedom, such goods may become more crucial.
That may also help Microsoft's higher-value corporate products.
Customers have begun using the company's E7 suite, which includes Copilot, E5, Entra, and Agent 365. During the first two months of the product's release, hundreds of business clients bought millions of seats.
Microsoft offers businesses more than just access to AI. It is progressively offering the solutions that businesses may need to control artificial intelligence when they integrate it into their routine tasks.
The Melius upgrade reframes one of the main concerns about Microsoft shares.
Investors are already aware of the company's significant investments in AI infrastructure. They are also aware that Azure is profiting from the rising need for processing power.
The less-explored portion of the narrative is what happens when businesses begin overseeing a sizable number of AI agents inside their companies.
That may immediately capitalize on Microsoft's current advantages.
Microsoft has been cultivating connections with business IT departments for decades. For many of those clients, its solutions already manage workplace apps, cloud infrastructure, identity, data, and cybersecurity.
AI agents add an additional layer that requires management.
Melius believes that as AI develops, Microsoft's enterprise position may improve rather than deteriorate. The company's confidence that it can convert that position into better profitability and stronger Azure growth is reflected in its $665 price objective.
How quickly corporate AI expenditure will result in profits is still up for debate, especially given Microsoft's ongoing significant infrastructure investments.
However, the company's most recent statistics show demand in several areas. Azure revenue grew 43% in the June quarter. Microsoft Cloud generated $59.3 billion in revenue. Microsoft 365 Copilot surpassed 30 million paid seats, and Agent 365 registered nearly 40 million agents within two months.
Taken together, these numbers demonstrate Microsoft's progress beyond providing AI processing power.
Additionally, it is attempting to become the platform that businesses use for technology deployment, monitoring, and control.
Melius' upgrade differs somewhat from a traditional positive bet on AI growth because of its focus.
The company contends that maintaining the security and corporate management of more powerful systems, one of AI's new challenges, may be another factor driving businesses to increase their spending with Microsoft.
Related: Microsoft cutting off popular software with no extension Oct. 13
This story was originally published by TheStreet on Oct 7, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.
