Wall Street’s AI Blind Spot: Wedbush Says Microsoft (MSFT) Growth Potential Massively Underestimated

Analysts are sleeping on the coming tsunami.

The AI Cash Machine Is Just Warming Up

Forget incremental gains. Wedbush's latest note paints a picture of an AI revenue engine Wall Street hasn't begun to price in. They argue the Street's models are stuck in the pre-Copilot era, missing the sheer scale of enterprise adoption about to hit Microsoft's balance sheet.

Cloud, Chips, and Everything as a Service

It's not just one product. The firm highlights a triple-threat: Azure's insatiable AI workload growth, the monetization wave from Copilot integrations across the entire software stack, and the custom silicon play that could reshape cloud economics. This isn't a side project; it's becoming the core business.

The closing argument? While traders chase quarterly whispers, the real money is being built in the silent, multi-year contracts being signed right now. A classic case of the market valuing the hardware but missing the perpetual software license. The upgrade cycle hasn't even started.

TLDR

• Wedbush analyst Dan Ives predicts Microsoft will surprise Wall Street with stronger AI growth than expected, particularly through Azure and Copilot deployments
• Recent checks show Azure and Copilot adoption among customers could add $25 billion to fiscal 2026 revenue
• Microsoft stock trades at $485.92, up 16.1% year to date and 12.5% over the past year
• Discounted cash flow analysis suggests Microsoft is undervalued by 19.2% with intrinsic value of $601.65 per share
• Bull case values Microsoft at $624.45 based on AI-driven growth, while bear case sees $420 fair value citing infrastructure costs and competition

Microsoft stock closed at $485.92 recently, posting gains across multiple timeframes. The stock is up 2.3% over the past week and 16.1% year to date.

Microsoft Corporation, MSFT

Wedbush Securities analyst Dan Ives believes Wall Street is missing something important. He thinks investors are underestimating how fast Microsoft’s artificial intelligence business will grow.

“The Street is underestimating the Azure growth story in our view,” Ives wrote to clients. He maintains an Outperform rating with a $625 price target on the stock.

Ives pointed to recent checks showing strong momentum in Azure and Copilot deployments. These customer adoption patterns could boost Microsoft’s fiscal 2026 revenue by an extra $25 billion.

The analyst sees Microsoft as one of his favorite large-cap tech stocks heading into the coming year. He believes the company sits in the sweet spot for enterprise AI deployments.

Investors remain skeptical of Microsoft’s AI-driven growth profile, according to Ives. This skepticism could set the stage for CEO Satya Nadella to prove doubters wrong.

Valuation Analysis Points to Upside

Multiple valuation methods suggest Microsoft stock may have room to run. A discounted cash FLOW analysis estimates intrinsic value at $601.65 per share.

That represents a 19.2% discount to the current market price. The DCF model projects free cash Flow growing from $89.4 billion currently to $206.2 billion by 2030.

Microsoft’s price-to-earnings ratio sits at 34.4 times earnings. This trades slightly above the software industry average of 32.4 times and peer average of 32.5 times.

The fair ratio metric suggests Microsoft could reasonably command a 52.7 times earnings multiple. This calculation factors in growth profile, profitability, and market characteristics.

Competing Market Narratives

The bull case for Microsoft values shares at $624.45. This scenario assumes AI-driven demand across Azure, Copilot, Dynamics, GitHub and Fabric sustains double-digit revenue growth.

Bulls expect high-margin recurring revenues from cloud, security and subscriptions to support rising earnings. The company’s $368 billion backlog backs this view.

Consensus price targets hover around $650, with some analysts reaching as high as $700. These targets reflect confidence Microsoft can balance heavy AI infrastructure spending with software efficiency gains.

The bear case paints a different picture with fair value at $420 per share. Critics argue Microsoft’s AI strategy is overhyped and increasingly commoditized.

Bears worry about the capital intensity of AI datacenter investments. They question whether Copilot could cannibalize per-seat Office demand, turning a high-margin software business into a lower-return infrastructure play.

Structural headwinds in PCs and a struggling Xbox console business add to bear concerns. Some worry Microsoft is undermining the ecosystem that historically fed Azure growth.

Microsoft currently scores 3 out of 6 on valuation checks. This suggests it looks undervalued on some metrics but not a screaming bargain on others.

The stock has delivered 12.5% returns over the past year. Longer-term holders have seen a 108.4% rally over three years and 125.1% gain over five years.

Wedbush’s thesis centers on cloud and AI monetization becoming a bigger piece of Microsoft going forward. Ives expects this shift to drive both growth and margins over the coming years.