Microsoft Faces Competition and New Analyst Optimism

Investors weigh old favorites against fresh opportunities in AI and tech.

Microsoft (NASDAQ: MSFT) initially gained a strong position in artificial intelligence (AI) through its partnership with OpenAI. Recently, however, investors have been drawn to Apple‘s new Apple Intelligence AI platform and Nvidia‘s Blackwell platform, leading to a decline in Microsoft’s popularity. The company has ceded its title of the world’s most valuable firm to Apple and has fallen behind Nvidia too. Currently, Microsoft’s stock is down 10% from its peak in July, missing out on the recent tech stock rally, as the Nasdaq Composite approaches all-time highs.

Despite this, one analyst sees potential for a comeback in Microsoft.

Image source: Getty Images.

KeyBanc Increases Its Outlook for Microsoft

This Friday, KeyCorp raised its price target for Microsoft from $490 to $505 while keeping an overweight rating on the stock. According to a recent survey, the firm’s research shows an expected recovery in Microsoft’s performance alongside IT budgets for the upcoming year. The predicted growth in IT budgets is now 4.4% in 2025, compared to a previous forecast of 3.2%.

This positive outlook for IT spending is critical for Microsoft, as corporate IT budgets largely influence its growth. KeyBanc’s new price target suggests a 21% upside potential for the stock.

Is a Microsoft Recovery Possible?

While Microsoft remains a leader in enterprise software, several questions linger. Investors are concerned about its price-to-earnings ratio of 35 and whether the company can substantiate its AI investments amidst some skepticism.

Furthermore, The New York Times reported on tensions between Microsoft and OpenAI, with Microsoft seeking a return on its investments and showing interest in funding other AI startups.

The upcoming earnings report later this month will shed more light on Microsoft’s prospects. Although its Azure cloud service has proven to be a valuable asset, the company may require more than that to regain momentum in the stock market.

Is Now the Right Time to Invest $1,000 in Microsoft?

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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.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.