Catenaa, Wednesday, June 03, 2026- Microsoft has spent the past two years writing some of the biggest checks in the tech industry, while Morgan Stanley suggests the market may not fully appreciate what those investments could ultimately be worth.
Morgan Stanley analyst Keith Weiss said that after analyzing Microsoft’s datacenter expansion and comparing cloud revenue growth to capacity additions, came away “bullish on upside potential,” arguing that expectations for the revenue those investments can generate may still have room to move higher.
The analyst believes Microsoft is building AI capacity ahead of demand, creating the potential for cloud revenue forecasts to rise as monetization catches up.
Using a “revenue per megawatt” framework to evaluate datacenter productivity, Weiss estimates Microsoft’s cloud ecosystem currently generates roughly $20 million to $30 million in annualized revenue per megawatt of installed datacenter capacity.
That figure is expected to trend lower over the next several years, reaching the high teens by fiscal 2028.
At first glance, declining revenue per megawatt might look concerning. However, Weiss does not actually view that trend negatively.
“We do not interpret this dynamic as evidence of a deteriorating monetization opportunity, but rather as an indication that Microsoft is deploying AI-specific capacity ahead of the associated monetization cycle,” he explained.
The scale of Microsoft’s expansion is significant. Based on the estimates, the company’s installed data center footprint could grow from roughly 5 gigawatts in fiscal 2024 to around 20 gigawatts by fiscal 2028. Microsoft is also expected to exit calendar 2025 with approximately 7-9 gigawatts of installed capacity.
Weiss’s analysis goes beyond Azure alone and incorporates Microsoft’s wider cloud ecosystem, including Microsoft 365 Commercial Cloud, Dynamics 365, LinkedIn’s commercial operations, and other cloud services.
The reasoning is that Microsoft’s infrastructure supports a “unified cloud and AI platform across Azure and multiple 1st party applications (rather than just Azure/Azure AI).”
Importantly, Weiss believes Microsoft’s existing infrastructure footprint could ultimately support materially higher revenue than current forecasts imply.
If AI adoption accelerates, inference workloads scale faster than expected, or software attach rates improve across Copilot, GitHub, Dynamics, and Microsoft 365, the company might be able to generate substantially greater revenue from its already deployed infrastructure without needing a proportional increase in future investment.
For Weiss, that opportunity is enough to assign MSFT shares an Overweight (i.e., Buy) rating along with a $650 price target, implying 52% upside from current levels.
Most analysts agree with that stance. Based on a mix of 34 Buys vs. 2 Holds, the stock claims a Strong Buy consensus rating. At $556.88, the average price target points toward one-year gains of ~24%.
