Melius lowered its price target on Microsoft (NASDAQ: MSFT) to $400 from $430, while maintaining a Hold rating, citing concerns around its AI strategy and partnership dynamics.
The firm noted that Microsoft’s recent reorganization of its Copilot division did not appear to be a move made from a position of strength. This development followed reports that Microsoft is considering legal action against OpenAI, a key partner that accounts for approximately 45% of Azure’s backlog.
OpenAI had been expected to provide intellectual property that would accelerate Microsoft’s AI capabilities and help it compete more effectively with peers such as Google. However, Melius suggested that these expectations have not materialized, as Copilot has yet to demonstrate strong market traction.
As a result, Microsoft may need to increase research and development spending and rely more heavily on its own Azure infrastructure to train proprietary models.
The firm also questioned the long-term monetization potential of Copilot, noting that even if adoption improves, the additional infrastructure required for AI workloads could limit profitability.
Melius added that broader enterprise demand for paid AI tools remains uncertain, particularly as many companies face hiring slowdowns and cost pressures after years of rising software spending.
The analyst concluded that customers may need to shift budgets toward new AI-native solutions rather than continuing to invest in legacy software platforms, which could present additional challenges for Microsoft’s growth trajectory.
