Microsoft Stock Gets a ‘Top Pick’ Rating from RBC Capital Amid AI Growth Prospects

Microsoft Stock Gets a ‘Top Pick’ Rating from RBC Capital Amid AI Growth Prospects

After a 12% decline in Q1, Microsoft (MSFT) is back in the spotlight as RBC Capital Markets analyst Rishi Jaluriaupgrades it to his "Top Picks" list, citing underappreciated AI-driven growth opportunities.

In a note to clients, Jaluria emphasized that Microsoft's advancements in Generative AI (GenAI) across infrastructure and applications remain undervalued by investors. He believes the company's Azure growth will accelerate, driven by:
✅ AI momentum
✅ Increased cloud capacity
✅ The "AI halo effect" boosting adoption

Additionally, Microsoft is expected to expand into new markets like hyperautomation, further solidifying its growth potential. The analyst maintains an Outperform rating and a $500 price target, reflecting a 33% upside from current levels.

Market Sentiment on Microsoft

According to Yahoo Finance data, Microsoft’s price target aligns with the broader market consensus. Among 58 analysts covering the stock, 91% rate it as a Strong Buy or Buy.

Despite the positive outlook, Microsoft was the fourth-worst performer in Q1 among the Magnificent Seven stocks:
? Tesla (TSLA): -38%
? Nvidia (NVDA): -21%
? Google (GOOG): -19%
? Amazon (AMZN): -14%

Why Did Microsoft Stock Struggle in Q1?

The Q1 sell-off was driven by three key factors:

1️⃣ Sector Rotation – Investors moved away from large-cap tech stocks into safe-haven assets like gold and healthcaredue to concerns over Trump’s tariff policies.
2️⃣ AI Investment Concerns – Since DeepSeek’s breakthrough in January, fears have emerged that AI spending could slow in 2025.
3️⃣ Earnings Miss – Microsoft’s Q4 revenue fell slightly below expectations:

• Commercial Cloud revenue rose 21% YoY to $40B, missing estimates of $41.1B

• Azure & Intelligent Cloud revenue hit $25.5B, below the expected $25.8B

Outlook for Microsoft

Despite recent struggles, Microsoft remains a dominant player in AI infrastructure, thanks to its heavy investment in OpenAI and continued cloud expansion. With analyst backing and improving AI adoption, the stock could be primed for a strong rebound.