MSFT "Adults in Charge" for AI? Upgrade Signals Azure Bull Case

Sam (0:00)

We are back on Morning Trade Live. Let's focus on the chart for Microsoft, up 50% since hitting a 52-week low on June 25th. So obviously, we've made a comeback. These are some of the levels that a lot of the technicians, like Jay Woods, as we mentioned, have been looking at. It's been seen as really the adult in the room when it comes to some of the AI slowdown fears, at least that has been the conversation that I've been hearing. So we are trading up 1.7% and it received an upgrade this morning. So that's the focus of the Morning Trade. Joining us now for a closer look is Marley Kayden. Good morning, Marley. Hope you had a nice weekend. Just break down the details of the note this morning.

Marley Kayden (0:34)

Good morning, Sam. Yeah, Melius Research making a bold case. The corporate fear of AI could actually send Microsoft soaring. And we're already seeing a response to this note. Microsoft up about 1.75% already on the backs of this note. So let's walk through the thesis here. First, it came with an upgrade to buy from hold. It has a new price target of $665.

We're trading at 526.35 right now.

The thesis rests on enterprise anxiety about how AI gets deployed. Melius' view is that corporate buyers that are worried about AI security and governance risks default to the vendor that they view as the most trustworthy or as the most responsible operator. And Melius is saying that Microsoft is what they are calling the quote-unquote adults in charge. That's how they see Microsoft being viewed when these AI fears are really coming to fruition and the time comes to really spend. They say as there was more conversation about these AI risks to humanity, that the firms are going to start looking more for these trustworthy legacy companies that they know have track records, and they view Microsoft as being the best positioned here. They say the dynamics in AI should help Microsoft benefit from stronger pricing trends, while seeing upside from increased capacity in their Azure line. But overall, very bullish, not seeing a lot of moves in the other rival mega cap cloud stocks. I mean, Amazon, as I'm just looking here, down slightly on the day, Alphabet just up ever so slightly. So this note seems to be being received as Microsoft could be the potential winner here in those big names. They're also citing their latest quarterly results as supportive to their thesis. For Q4, Azure grew by 43 percent, its commercial remaining performance obligations rose 84 percent to $678 billion. They say that that backlog really fits Melius' picture of buyers settling into this trusted vendor thesis. So we talk a lot about these AI fears and enterprise anxiety, but Melius making a bold call today that the more this anxiety persists the more these companies are going to look for a trusted, tried and true name and Melius believes that that's Microsoft.

Sam (2:59)

Yeah, and it's interesting because if you remember just a few weeks ago when the AI Slowdown Talker began, it came out with this draft code of conduct which was interesting as well. So yeah, an interesting note and nice reaction we're obviously seeing. As I mentioned, technicians are watching this potential breakout of these levels as well. Marley, really appreciate the details. Thank you so much. Let's trade it now with Charles Moon, Stock Strategist over at Prosper Trading Academy. Charles, good morning to you.

Obviously, this is something that's catching a lot of people's eyes as far as this level is concerned. Walk us through an example trade.

Charles Moon (3:32)

Yeah, this has been the shutdown point over the last month. They've shown signs the last two trading sessions that they've been applying pressure at this peak level right around 524 to essentially bubble up and go. They had what's known as an inside candle, which is a bit of a tight consolidation moment. And triggering down would have been negative, but triggering up could also lead to what we would say breakout potential towards their all time highs at 550 So this is where I could see it get into 550 really quickly. It's certainly a high risk trade leading up into the FOMC with the queues slowly retracing back at the all time highs, but nevertheless look at how well they're performing right now. So I love the idea of a short term breakout. I'm looking at the October 16th 535 strike at 575 or lower. Now the risk is pretty wide. It's going to be at around 75%. I think this could easily knock the door at 150% or more. Obviously, if there's a shorter time frame where it could get into that particular upside range of 550 Now, the key here is how the hyperscalers overall are going to kind of trade. We've seen Meta bit up here. We've seen Google try to recover through the 200 and the 50 SMA. We've seen Amazon start to bid up over the last few days.