Microsoft selloff brings attractive risk/reward, says Jefferies

Jefferies believes the recent selloff in shares of Microsoft (MSFT) represents an attractive entry point due to a now “derisked valuation.” The firm sees multiple drivers for the shares to re-rate, including Azure and M365 cloud growth stabilizing and potentially inflecting as artificial intelligence revenue becomes more material, continued margin expansion despite mega AI investments, and potential positive free cash flow revisions as the company’s capex growth slows. Microsoft remains one of Jefferies’ favorite large-cap names with a Buy rating and $550 price target It believes fundamentals are strong for Azure and M365 Community Cloud, which represents 53% of the business.