Morgan Stanley Pounds the Table: Microsoft is the Most Under-Owned Stock

Core Viewpoint - Morgan Stanley has identified Microsoft (MSFT) as the most under-owned megacap stock, despite its 18% decline year-to-date and trading at its lowest multiple in years, indicating potential for repositioning by institutional investors [1]. Financial Performance - Microsoft reported Q2 2026 revenue of $81.27 billion, exceeding expectations of $80.4 billion, with adjusted earnings of $4.14 surpassing estimates of $3.92 [1]. - Microsoft Cloud revenue reached $51.5 billion, reflecting a 26% growth, while the Intelligent Cloud segment grew 29% year-over-year to $32.9 billion [1]. Market Sentiment - Despite strong fundamentals, Microsoft shares have fallen significantly, with an 11% drop from $543.47 to $482.52 following the Q1 earnings report, and currently trading 17% lower than the day before the latest report [1]. - Investor concerns stem from the decline in the More Personal Computing segment, which fell 3% year-over-year, raising questions about the impact of AI investments on legacy businesses [1]. Investment Strategy - Morgan Stanley's analysis suggests that the current institutional underweighting of Microsoft presents a setup for potential buying, as 76.5% of the stock is held by institutions, indicating room for rotation back into the stock [1]. - The consensus among analysts is overwhelmingly bullish, with 57 buy or strong buy ratings and a consensus price target of $596, implying a 50% upside from current levels around $397 [1]. Strategic Initiatives - Microsoft announced a $50 billion investment aimed at enhancing AI infrastructure and multilingual capabilities in the Global South by the end of the decade, targeting regions like India, Africa, Southeast Asia, and Latin America [1]. - This investment counters concerns that Microsoft's growth is limited to saturated Western markets, as these regions represent billions of potential users yet to migrate to cloud infrastructure [1].