Microsoft Corporation (MSFT) caught fresh attention from Wall Street last week after Citi maintained its “Buy” rating on the stock. The analyst pointed to accelerating momentum in the company's artificial intelligence products and continued strength in its cloud business as key reasons to stay bullish.

With a market cap of $2.9 trillion, MSFT stock has returned 681% to shareholders over the past decade. Despite these outsized returns, Microsoft is down 30% from all-time highs, allowing you to buy the dip.

Microsoft's AI and Cloud Businesses Are Key Drivers

In the December quarter, Microsoft reported revenue of $81.3 billion, up 17% year-over-year (YoY). Compared with the prior year, net income grew almost 60% to $38.5 billion. 

Microsoft's cloud business surpassed $50 billion in quarterly revenue for the first time, growing 26% YoY. Azure, Microsoft's cloud computing platform, grew 39% in the quarter. Microsoft 365 Copilot—its AI assistant for workplace software—added seats at a record pace, up more than 160% YoY. The tech giant now has 15 million paid Copilot seats.

Citi analyst Tyler Radke maintained his “Buy” rating after conversations with Microsoft's investor relations team, focusing on three main topics: competitive positioning in AI, how the company is managing limited cloud capacity, and its capital spending priorities.

On Copilot, Radke noted the product is now a genuine growth engine for Microsoft's commercial software division. Adoption is accelerating fast enough that it could surpass previous growth benchmarks for the segment.

Azure is a slightly more complicated story. Demand is outpacing available supply right now. But Microsoft has outlined a clear plan to manage that gap—and its own silicon chips, called Maia, are expected to help. 

During the earnings call, Microsoft CEO Satya Nadella said Maia 200 delivers more than 30% improved cost efficiency compared to the latest generation hardware in the company's fleet.

That matters because lower infrastructure costs support better profit margins over time, which is what Radke flagged as a reason for longer-term confidence.

Microsoft's AI Position is Hard to Replicate

AI is embedded deeply across Microsoft's product lines. Over 80% of Fortune 500 companies have active AI agents built using Microsoft's tools. 

GitHub Copilot, Microsoft’s AI coding assistant, now has 4.7 million paid subscribers, up 75% YoY. Dragon Copilot, used in healthcare, is helping document 21 million patient encounters per quarter. Radke emphasized that Microsoft's combination of data, workflow tools, and security capabilities gives it a strong foothold in the race to dominate AI-driven enterprise software. 

It's worth noting that the analyst landscape is largely bullish. Out of the 50 analysts covering MSFT stock, 41 recommend “Strong Buy,” four recommend “Moderate Buy,” and five recommend “Hold.” The average Microsoft stock price target is $595.60, above the current price of about $397. 

Analysts forecast Microsoft's revenue to increase from $281.72 million in fiscal 2025 (ended in June) to $591 billion in fiscal 2030. In this period, earnings are forecast to expand from $13.64 per share to $31.84 per share. If MSFT stock is priced at 25x forward earnings, which is below its 10-year average, it should gain 100% over the next three years.

For investors closely watching Microsoft, the core question is whether the company's massive spending on AI infrastructure will pay off. Based on Citi's analysis and the latest earnings data, the early returns look promising.

More news from Barchart

• Size Doesn’t Matter to Warren Buffett – He Warns Managers Focus Too Much on the ‘Yardstick of Size’ and Not Enough on ‘Profitability’
• As Tesla Cuts Cybertruck Prices, Should You Buy TSLA Stock?
• Add Foreign Exposure to Your Portfolio with This 1 ETF
• How to Optimize Your Option Screener Results for Put Selling Strategies