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Investing.com -- DA Davidson upgraded Microsoft (NASDAQ:MSFT) to a Buy rating and raised its price target to $450 from $425, citing a more disciplined capital expenditure strategy and strong positioning among the mega-cap tech companies.
“We believe Microsoft has moved to a more rational capex strategy and is the best positioned Mag6 for a slowing consumer.”
The firm noted that Microsoft has rationalized its approach to capex, ensuring stronger margins and return on invested capital (ROIC).
“Our September downgrade was partially predicated on the poor ROI of Microsoft escalating the AI infrastructure buildout wars,” DA Davidson explained.
However, Microsoft has since guided for flat sequential capex over the next couple of quarters and lower growth heading into FY26.
“Furthermore, Mr. Nadella has signaled the end of the escalation, which we believe Amazon (NASDAQ:AMZN) has already responded to by guiding for flat sequential capex over the next four quarters.”
DA Davidson also highlighted Microsoft’s shift in AI infrastructure investment, noting that the company is offloading certain capex burdens to partners like CoreWeave, Oracle (NYSE:ORCL), and SoftBank (TYO:9984).
“The recent disclosure by Coreweave that Microsoft was a 62% customer indicates Microsoft is using Coreweave as overflow for workloads it is either not ready for or is not interested in.”
Additionally, Oracle’s expected increase in capex spending suggests that “OpenAI’s need to find new training capacity as Microsoft is no longer interested.”
With limited consumer exposure relative to other Mag6 stocks, DA Davidson sees Microsoft as a defensive play in an uncertain economic environment. “Apart from NVDA, Microsoft has the least consumer exposure out of the Mag6.”
Given its more attractive valuation—Microsoft’s multiple has declined from 35x to 27x—the firm sees it as “the most likely of the Mag6 to become defensive.”