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Investing.com -- UBS said in a note on Wednesday that Microsoft’s latest pricing and licensing changes are likely to drive stronger cloud revenues, reinforcing its Buy rating on the stock.
“Last week, Microsoft (NASDAQ:MSFT) announced a new pricing and licensing model that partners described as ‘significant’ and ‘very aggressive,’ prompting us to explore the change in detail,” UBS analysts wrote.
The bank said Microsoft is “standardizing pricing across most of its customer tiers on EA contract types, with partners consistent in their feedback that this results in a net price increase.”
The changes, effective Nov. 1, will apply to Microsoft’s Online Services suite, including Azure, Microsoft 365/Office 365, and Dynamics 365.
UBS estimated these products represent about 55% of revenues. Government and education contracts, as well as on-premise products, are exempt. According to partners cited by UBS, the net price increase ranges between “3-6% to 10-14%.”
UBS stated that it assumes the new pricing was reflected in Microsoft’s guidance and that the firm now has “marginally more confidence in our outlook for total c/c revenue growth of 14% in FY26E.”
Analysts cautioned, however, that the benefits may be gradual because the increases apply as contracts renew and do not cover Microsoft’s largest global accounts.
The bank also noted that “partners flagged a series of separate pricing/licensing changes that Microsoft has been making on its on-prem suite that we conclude could have accelerated Azure migration activity of late.”
UBS kept its $650 price target and Buy rating on MSFT unchanged, citing the company’s strong positioning in artificial intelligence.
“We still view the stock as being reasonably priced given how levered Microsoft is to the AI phenomenon,” the analysts said.