JMP Securities raised its rating on Microsoft to Market Outperform from Market Perform and set a $550 price target, citing ongoing discussions between China's Moonshot and major U.S. cloud providers over AI revenue-sharing terms.
The firm characterized the negotiations as the first serious attempt to formalize pricing for AI model distribution, with reported terms suggesting revenue splits up to 30% for distribution partners. Microsoft, Amazon, and Google are among the companies reportedly engaged in the talks, according to sources cited by JMP.
Microsoft's shares were indicated at $513.53 on the Nasdaq on August 27, up $8.47, or 1.68%, extending gains after the rating change. The stock's 28.65 P/E ratio remains above long-term averages, reflecting elevated expectations tied to its AI-driven growth strategy.
Separate from the rating action, Moody's affirmed Microsoft's Aaa senior unsecured and issuer ratings with a stable outlook, underscoring the company's strong credit profile despite ongoing scrutiny of its data center energy use and emissions.
The upgrade follows reports that Microsoft, Salesforce, and ADP are exploring acquisitions in the HR software space, including Darwinbox, an Indian firm. Meta Platforms is also noted as a major AI customer of Microsoft's Azure cloud, with reported annual spending in the hundreds of millions on AI models.
Demand for Microsoft's recent $3.9 billion bond offering exceeded $8 billion, prompting an upsized allocation. The strong investor response underscores confidence in the company's balance sheet and liquidity position amid accelerated AI infrastructure investment.
