Microsoft (MSFT) Stock: The Cloud and AI Numbers That Have Analysts Bullish

TLDR

• IT budgets expected to grow 5.3% in 2026, up from 4.6% in 2025, according to KeyBanc survey of resellers
• 30% of respondents expect public cloud spending to grow faster, up 17 percentage points from Q3
• Morgan Stanley survey shows 92% of CIOs plan to use Microsoft’s generative AI products in the next year
• Azure maintains leadership with 53% of application workloads, while 80% of CIOs plan to use Microsoft 365 Copilot
• KeyBanc maintains $630 price target while Morgan Stanley names Microsoft a Top Pick despite 8% stock decline

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Microsoft stock has dropped 8% over the past three months. But two new surveys suggest the company is positioned to benefit from rising IT budgets and accelerating AI adoption in 2026.

Microsoft Corporation, MSFT

KeyBanc surveyed resellers who buy IT products and bundle them with services. The results show customer budgets are set to grow 5.3% this year. That’s faster than the 4.6% growth seen in 2025.

The survey found growing demand for public cloud services. 30% of respondents expect customer spending on public cloud to grow faster. That’s up 17 percentage points from the third quarter.

KeyBanc analyst Eric Heath says this trend benefits Azure beyond just graphics processing units. Multiple Copilot products are also gaining traction. More respondents reported Copilot piloting and production already underway.

KeyBanc maintains an Overweight rating with a $630 price target on the stock.

Morgan Stanley’s fourth quarter CIO survey backs up the positive outlook. Software budgets are expected to grow 3.8% in 2026, up slightly from 3.7% in 2025.

Microsoft Leads Cloud Market Share

The Morgan Stanley survey shows Microsoft is the top share gainer of IT spending. This applies to both a one-year and three-year outlook.

Azure currently hosts 53% of application workloads among surveyed CIOs. This leadership position is expected to continue over the next three years.

Azure AI ranks as a key priority for technology executives. 37% of CIOs expect to use Azure OpenAI Services in the next 12 months. 42% plan to use GitHub Copilot.

AI Adoption Continues to Climb

Microsoft 365 Copilot adoption is rising steadily. 80% of CIOs plan to use it in the next year. Morgan Stanley notes this marks the fifth consecutive quarterly increase.

CIOs expect Copilot penetration to reach 61% of employees over three years.

The Morgan Stanley survey found 92% of CIOs expect to use Microsoft’s generative AI products in the next year. That’s down slightly from 95% a year ago but remains near total market coverage.

Market skepticism has weighed on Microsoft and software stocks recently. Companies with ties to ChatGPT developer OpenAI have faced particular pressure.

Goldman Sachs recently raised its price target on Microsoft to $655. The firm argued that investments in AI startup Anthropic and in-house AI models have diversified Microsoft’s exposure beyond OpenAI.

Questions about AI adoption speed persist. Microsoft shares fell last month after The Information reported the company was easing sales quotas for enterprise AI products like Microsoft 365 Copilot. Microsoft told Barron’s that aggregate sales quotas for AI products had not been lowered.

KeyBanc’s survey shows a steady increase in customers in the “experimenting/piloting” phase with AI. Respondents citing GenAI rollouts in production remain in the low-to-mid-single-digit range.

Shares of Microsoft traded down 0.7% at $467.50 in premarket trading Tuesday.

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