Jefferies says Microsoft’s recent pullback presents an attractive entry opportunity
Jefferies analyst Brent Thill wrote this week that the recent pullback in Microsoft Corporation (NASDAQ: MSFT) shares has created an attractive buying opportunity. He highlighted the company’s expanding backlog, deepening AI partnerships, and continued strength in cloud computing as the foundations of a robust multi-year growth outlook among large-cap technology names.
Thill noted that the stock has declined about 18% since the first fiscal quarter, despite Microsoft disclosing roughly $250 billion in commitments to OpenAI and an additional $30 billion linked to Anthropic. He added that Microsoft’s current valuation—around 23 times calendar-year 2027 earnings—now trades below that of Amazon and Google, even though Microsoft offers what he sees as superior earnings visibility.
According to Thill, Microsoft’s record level of contractual commitments is the primary catalyst for buying at current prices. He expects second-quarter remaining performance obligations to show the largest sequential increase on record, driven largely by the OpenAI and Anthropic agreements, which he says provide “unprecedented multi-year demand visibility.”
Azure remains a central source of upside. Thill described Azure demand as constrained by supply rather than demand, noting that Microsoft plans to double its data-center capacity over the next two years. After beating Azure revenue guidance for three straight quarters, he believes that execution on new capacity alone could push results above consensus expectations for both fiscal second-quarter Azure performance and full-year 2026 forecasts.
The analyst also pointed to accelerating AI monetisation from Copilot and other first-party products. With Azure representing roughly 30% of total revenue, he said sustained outperformance in the cloud business could push overall revenue growth into the high-teens.
Although Thill acknowledged ongoing capacity constraints and elevated capital expenditures, he believes Microsoft is well positioned to generate meaningful upside to both revenue and earnings through fiscal 2026.
Analyst upgrades Google to Strong Buy as AI stack accelerates
Earlier this week, Raymond James upgraded Google parent Alphabet (NASDAQ: GOOGL) to Strong Buy, arguing that the company is entering a phase in which its AI stack is “shifting into high gear,” creating the conditions for meaningful upward revisions to medium-term forecasts.
Analyst Josh Beck said updated bottom-up analysis across Search and Google Cloud Platform (GCP) led him to raise his 2026 and 2027 estimates, with his 2027 revenue projection now exceeding broader Street expectations. He believes Alphabet is “entering a cycle of strengthening AI stack momentum and upward estimate revisions that could produce one of the highest-quality top-line AI acceleration stories in the public markets.”
Beck added that in 2026, the AI stack narrative and related forecast upgrades are likely to become the primary performance drivers among mega-cap internet stocks, rather than a simple mean-reversion trade.
Within Cloud, Beck projects GCP revenue growth of 44% in 2026 and 36% in 2027, ahead of consensus. He attributes this to strong momentum in infrastructure and platform services, underpinned by large-scale TPU and GPU deployments and increasing adoption of the Gemini API and Vertex AI.
By the end of 2027, Beck estimates that GCP could generate approximately $25 billion in annualised revenue from TPUs, around $20 billion from GPUs, about $10 billion from the Gemini API, and roughly $2.5 billion from Vertex AI.
In Search, Beck projects revenue growth of 13% in both 2026 and 2027—above broader Street expectations—as softness in core search is offset by the expanding adoption of AI Overviews, AI Mode, and Gemini. He expects AI-driven queries to drive stronger cost-per-click growth as improved context and conversion rates enhance monetisation.
Stifel starts Micron at Outperform, citing a multi-year memory market upturn
Brokerage firm Stifel initiated coverage of Micron Technology with an Outperform rating, arguing that the memory industry is entering a multi-year upcycle driven by structural AI demand and persistently tight supply conditions.
Stifel believes Micron is well positioned to benefit from rising average selling prices and a favorable mix shift toward higher-margin products, as memory increasingly becomes a critical constraint within AI systems. “Access to memory has emerged as a key bottleneck in AI racks and systems, boosting demand for higher-performance, higher-bandwidth memory solutions,” the firm said.
With supply expected to remain constrained through 2027, Stifel sees an environment supportive of sustained pricing power and margin expansion. Against this backdrop, the firm expects Micron to capture significant ASP growth and expand margins, forecasting non-GAAP EPS growth of more than 275% over the next two years.
High-bandwidth memory (HBM) is central to Micron’s growth thesis, according to Stifel. As AI models become more complex and require faster access to larger data sets, next-generation chips are incorporating more HBM, increasing memory’s share of overall AI infrastructure spending. As the industry’s number-two player, Micron is expected to see HBM revenue grow 164% in fiscal 2026 and a further 40% in fiscal 2027, with DDR and QLC NAND also benefiting from AI-driven demand.
Stifel also highlighted several risks, including the potential re-emergence of Samsung as a more formidable HBM competitor, elevated capital spending that could shift value toward equipment suppliers, a possible easing in DRAM supply-demand dynamics, and the risk that chipmakers design their own base logic dies.
On valuation, Stifel noted that Micron trades at roughly 9.7 times calendar 2026 earnings, modestly below historical averages. “While valuation increasingly reflects significant growth expectations, we believe the shares can continue to perform on the back of a multi-year, AI-driven product cycle characterized by tight supply,” the firm concluded.
Mizuho says Arm selloff presents a buying opportunity
Mizuho analyst Vijay Rakesh said investors should take advantage of the recent pullback in Arm Holdings shares to build positions, arguing that market concerns around handset demand have become excessively pessimistic.
Arm’s stock has declined roughly 30% since November, even as the Philadelphia Semiconductor Index has risen about 10%. Rakesh described the selloff as “overdone,” adding that Mizuho would “be buyers of ARM on the approximately 30% pullback.”
According to Rakesh, Arm’s growth drivers extend well beyond smartphones. While mobile royalties account for about 50% of revenue, he noted that Arm has historically outpaced handset market growth and is projected to expand at annual rates of 7% to 31% between 2021 and 2027.
A key catalyst is the ongoing transition to Arm’s v9 architecture, which delivers roughly double the average selling price per core compared with v8, providing a structural uplift to royalty revenue. Rakesh also highlighted rising interest in custom silicon, noting that potential ASIC and CPU ramps in 2027 and 2028 could contribute more than $1 billion in incremental revenue.
He further pointed to opportunities tied to AI-focused custom chips, including a potential training and inference ASIC associated with OpenAI and SoftBank. That initiative alone, he said, could conservatively generate around $1 billion in revenue during the 2027–2028 period.
Beyond mobile, Arm is gaining traction in data centers as hyperscalers increasingly adopt its architectures. Rakesh cited platforms such as AWS Graviton, Microsoft Cobalt, Meta’s planned CPU, and Nvidia’s Grace and Vera as evidence of a growing custom silicon customer base and an improving royalty mix.
Rakesh reiterated Mizuho’s Outperform rating and $190 price target, saying Arm remains “well positioned as the broadest global semiconductor platform.”
Morgan Stanley grows more positive on European semiconductor stocks
Morgan Stanley upgraded the European semiconductor sector to Overweight this week, arguing that the group offers an attractive environment for selective stock picking as diversification inflows gather pace, valuation dynamics improve, and semiconductor equipment companies stand to benefit from the next phase of the AI capital expenditure cycle.
The firm’s strategists noted that European equities are attracting increased diversification inflows while beginning to emerge from a long-standing valuation discount to U.S. markets. Within this context, semiconductors stand out as a sector where strengthening bottom-up fundamentals are increasingly driving top-down performance. Morgan Stanley said its preferred expression of this view remains analyst-led stock selection rather than broad factor exposure.
“While European equities already appear highly idiosyncratic, we see further scope for stock-level dispersion in Europe to rise toward cycle highs,” the strategists wrote.
The upgrade is anchored in the semiconductor equipment segment. Morgan Stanley highlighted ASML as the dominant contributor to European Top Picks performance year to date, accounting for more than half of weighted gains. ASML also represents roughly 80% of the MSCI Europe Semiconductors and Semiconductor Equipment index.
Looking ahead, the bank said risks in the AI investment cycle are shifting away from demand and toward execution and transition. “For 2026, the key risk in the AI capex cycle is execution and transition, not demand,” the strategists wrote, arguing that this dynamic favors European semiconductor equipment exposure—particularly companies tied to extreme ultraviolet lithography.
Morgan Stanley expects upcoming order intake to confirm higher foundry and memory capital spending through 2027, alongside stronger-than-expected demand from China.
From a portfolio construction standpoint, the firm said it adjusted its sector model to reflect improving earnings momentum and broader price-target revisions for European semiconductors, while neutralising accrual factors and reducing China exposure. These changes lifted the sector to second place in Morgan Stanley’s internal rankings, just behind banks.
At the stock level, ASML and ASM International remain Morgan Stanley’s Top Picks, with BE Semiconductor Industries also highlighted as an Overweight-rated beneficiary of the same themes.
Sources: Investing
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