JPMorgan released a new research report raising its Microsoft (MSFT) price target from $550 to $625, maintaining an Overweight rating, based on 24 times projected fiscal 2028 earnings per share of $26.05 (approximately NT$800). The firm’s analyst Samik Chatterjee noted that the market is clearly underestimating the profit potential of Microsoft’s applications business and Copilot, projecting that the Productivity and Business Processes (PBP) segment will account for roughly 45% of company earnings, with mid-teens revenue growth over the medium term.

The report emphasized that Microsoft’s AI infrastructure buildout is driving accelerating growth in Azure and M365 commercial cloud, with products like Copilot serving as internal customers, creating a high-margin applications software supply. JPMorgan expects Microsoft to achieve high-teens compound annual growth in revenue and earnings per share from 2025 to 2029, and given lower capital requirements than peers, this should support a return to its historical valuation premium.

Chatterjee laid out two core arguments in the report. First, he holds a positive view on Microsoft’s growth prospects, viewing AI infrastructure buildout as the key driver of accelerating Azure and M365 commercial cloud growth. He stated: “M365 cloud products (including Copilot) serve as internal customers of Microsoft’s AI infrastructure, enabling the company to fully leverage this buildout in the form of high-margin, differentiated application software offerings, while simultaneously benefiting from demand for third-party AI infrastructure from both AI-native enterprises and general businesses.”

Second, he argued that high revenue and earnings growth, combined with below-peer capital requirements, should be sufficient to support Microsoft’s return to a historical premium relative to the broader market—and potentially even higher.

Earnings Highlights and Market Reaction

Microsoft’s stock has rallied 26% since the company reported fiscal fourth-quarter 2026 results on July 29. For a tech giant with a market capitalization of $3.7 trillion, such a surge over just two weeks is highly unusual. Market observers note that this rally was not simply driven by blowout earnings, but rather by a confluence of factors.

Ahead of the earnings release, Microsoft’s valuation had fallen to unreasonable levels. From early July through the earnings announcement, its forward price-to-earnings ratio briefly dipped below 20 times—the lowest level in recent years. Given Microsoft’s business quality and growth profile, this valuation was clearly too low, so capital flooded in as soon as results were released.

Microsoft’s fiscal fourth-quarter revenue reached $90 billion (approximately NT$2.9 trillion), up 18% year over year. Azure and other cloud services grew 43%, with Azure annual revenue officially crossing the $100 billion (approximately NT$3.2 trillion) milestone—proving that enterprise customers are not merely experimenting with AI but deploying it at scale. In other words, Microsoft is monetizing AI.

The company also demonstrated operating leverage, with operating income rising 18% to $40.6 billion (approximately NT$1.3 trillion) while simultaneously expanding data center capacity at a rapid pace. CFO Amy Hood’s disciplined expense management, combined with $10.2 billion (approximately NT$330 billion) returned to shareholders in the quarter through dividends and buybacks, instilled confidence on Wall Street.

More critically, Microsoft maintained its full-year capital expenditure guidance. By contrast, Alphabet (GOOG, GOOGL) and Meta (META) both raised their already-elevated data center spending expectations. With the market worried about whether AI giants are overbuilding, Microsoft’s decision not to accelerate further was interpreted as more rational and restrained, helping to boost investor confidence.

Copilot Commercialization Progress

JPMorgan estimates that M365 Copilot has surpassed 30 million paid users, representing roughly 7% penetration of M365 commercial users, and expects this to drive accelerating M365 commercial cloud revenue growth. Microsoft’s fiscal 2026 Azure revenue has already exceeded $100 billion, and JPMorgan projects approximately 45% constant-currency Azure growth in the September-ending first fiscal quarter, reflecting solid execution amid demand outstripping supply.

Since the late-July earnings release, market earnings estimates for Microsoft have continued to rise. Chatterjee was among the first Wall Street analysts to turn bullish after the results, and the market expects other analysts to follow suit with rating upgrades after engaging with clients and investors and adjusting their models.

Valuation Has Recovered, Long-Term Value Remains

After this rapid rally, Microsoft’s valuation has returned to a more reasonable range. It remains at the lower end of its own recent historical levels, but compared with some mega-cap tech stocks, it is no longer “clearly undervalued.” Market observers note that the previous bargain-hunting opportunity has passed. In the short term, the stock has already rapidly recovered a substantial portion of the undervaluation premium.

From a long-term perspective, Microsoft remains a quality asset. Azure’s high growth, Copilot’s commercialization progress, and disciplined AI infrastructure spending all support its potential to continue outperforming the market. However, from a short-term trading perspective, the 26% gain over the past two weeks has already rapidly lifted the stock from severely undervalued territory—expecting another surge of the same magnitude in the near term is unrealistic.

For long-term investors, Microsoft still merits a position, but they should accept that it has moved from “deeply undervalued” to “reasonably rich” territory, and future value realization is more likely to come through steady growth rather than explosive rallies. For investors seeking short-term upside, this rapid recovery has already narrowed the opportunity window considerably.