Is Microsoft Going to $505? 1 Wall Street Analyst Thinks So

Microsoft (NASDAQ: MSFT) was an earlier winner in artificial intelligence (AI) thanks to its partnership with OpenAI. But lately, investors have been moving away from the enterprise software giant, enticed by Apple's new Apple Intelligence AI platform, and Nvidia's Blackwell platform.

Microsoft has lost its title of the world's most valuable company to Apple and recently fell behind Nvidia for the second-most valuable company in the world. The stock is now down 10% from its peak in July, and it's missed out on the latest rally in tech stocks as the Nasdaq Composite is back near all-time highs.

However, one analyst sees upside potential in Microsoft.

Image source: Getty Images.

KeyBanc raises its view on Microsoft

In a note on Friday morning, KeyCorp hiked its price target on Microsoft from $490 to $505 and maintained an overweight rating on the stock. The research firm said a recent survey showed a rebound in the company's performance and IT budgets heading into next year. KeyBanc found that IT budgets were now expected to grow 4.4% in 2025, compared with an earlier forecast of 3.2%.

That finding certainly looks like a positive for Microsoft as corporate IT spending is a primary determinant of its growth. KeyBanc's new price target implies a 21% upside in the stock.

Can Microsoft bounce back?

Microsoft remains the dominant enterprise software company, but there are valid questions facing the stock, including its valuation at a price-to-earnings ratio of 35 and its ability to justify its investments in AI, as the company faces some skepticism on that front.

Additionally, The New York Times just reported that its partnership with OpenAI is facing some tensions as Microsoft wants a payoff from its investment in OpenAI and is interested in investing in other AI start-ups.

We should learn more when the tech giant reports earnings later this month. While its Azure cloud infrastructure business has been a bright spot, the company may need more than that for the stock to get back to its winning ways.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.