UBS: Microsoft (MSFT.US) office software outlook needs improvement to boost stock price; target price lowered to $510

Reuters Finance APP has learned that after recent investor meetings, UBS stated that Microsoft’s (MSFT.US) 365 and Copilot products need improved market prospects to drive the tech giant’s stock price higher.

Analyst Karl Keirstead wrote in a client report: “We maintain a buy rating on Microsoft, currently based on a 19x P/E ratio for its 2026 fiscal year non-GAAP earnings per share. However, we also acknowledge that for the stock to truly achieve a higher valuation, the market outlook for M365/Copilot needs to improve.”
As a result, Keirstead has lowered the target price from $600 to $510.

Keirstead explained that recent initiatives by OpenAI and Anthropic into knowledge-based work hit Microsoft’s “pain points,” but investor focus has shifted to the sustainability of 365 and Copilot and the growth they can bring.

Keirstead stated that after meeting with Microsoft’s investor relations team, the Windows giant indicated that usage rates and user numbers in its second fiscal quarter have rebounded. Notably, Keirstead added that recent measures, such as Copilot Cowork, the new E7 package, and leadership changes, “indicate that Microsoft has adopted a more proactive stance internally and is showing a sense of urgency.”

Keirstead explained that besides Office 365 and Copilot, Microsoft is “very optimistic” about demand for Azure, but did not provide the latest updates on revenue growth and capacity expansion, although Microsoft has previously shared related information with investors.