The industry changes brought by the growing adoption of open-source models are overall favorable for Microsoft (MSFT). Its cross-model cloud infrastructure, data platform, and office ecosystem constitute differentiated barriers, and institutions are optimistic about its revenue potential amid the multi-model wave. The voluntary departure program is also an organizational adjustment by Microsoft to adapt to the pace of AI development and optimize its cost structure.
Morgan Stanley maintained its “Overweight” rating and $600 target price for Microsoft in a research report released on October 26, believing that the market underestimates the company’s long-term growth potential in its AI business. The report noted that enterprises will select models based on factors such as cost, performance, and data sovereignty. The advantage of a single model continues to weaken, while the value of platforms compatible with multiple models continues to rise.
Morgan Stanley identified three core competitive strengths of Microsoft. First, the Azure and Foundry platforms are suited to multi-model demands. Foundry already supports more than 11,000 AI models and provides enterprises with a unified environment for model management and deployment. Whichever model an enterprise chooses, its workloads can run on the Azure cloud. Second, Microsoft 365 and Copilot form a unique distribution barrier. AI capabilities are directly embedded into enterprises’ daily office workflows. Paid Microsoft 365 Copilot seats currently exceed 30 million. Morgan Stanley’s latest Chief Information Officer (CIO) survey shows that nearly half of the responding executives prefer Microsoft for building customized AI applications. Third, declining inference costs benefit the pay-as-you-go model. Based on the Jevons Paradox, a decline in the unit cost per call will drive an increase in enterprises’ overall AI call volume. Microsoft can allocate workloads through its multi-model architecture to optimize operating costs. Fabric, Foundry, and Microsoft 365 also form a synergistic growth loop that connects data, models, applications, and cloud resources.
From a valuation perspective, based on the closing price on October 23, Microsoft’s forward price-to-earnings ratio is below its historical range, and its PEG ratio is also below past levels, making its valuation attractive. The institution provided two performance scenarios. Under the base case, earnings per share in fiscal year 2028 would be $24.08, while under the optimistic case it could reach $27.64. In terms of risks, a slowdown in enterprise IT spending, AI implementation falling short of expectations, and margin pressure from continued heavy investment in infrastructure could all affect performance.
In addition to its business layout, Microsoft has simultaneously initiated personnel adjustments, offering a voluntary departure compensation package to approximately 60,000 employees. The program covers some vice presidents and below in the United States, Canada, India, and the United Kingdom, with multiple departments including Xbox, Windows, and Copilot included in the program. Some positions such as those in data centers and cybersecurity are not included. Microsoft’s Chief People Officer said that the program provides a smooth transition channel for employees who are considering leaving, and that the related benefits are benchmarked against standard severance packages. The company expects the acceptance rate for this program to be lower than that of its previous voluntary retirement program.
