11:56 AM EDT, 10/30/2025 (MT Newswires) -- Microsoft's ( MSFT ) outperformance in fiscal Q1 reflects solid execution in response to growing AI demand, Morgan Stanley said in a Thursday research note.

Smart positioning against secular product themes driving software demand, along with chief information officers consolidating spend with fewer vendors, placed the company in "all the right places at the right time," analysts wrote.

Azure's growth remains limited by supply constraints, which are now expected to continue through the current fiscal year, the firm said. The company's ability to beat targets in a supply-constrained landscape will depend on capacity build-outs, according to the note.

Other income attributed to OpenAI losses rose to over $4 billion in Q1. With the Equity Method balance remaining on the company's balance sheet at $1.8 billion and $1.4 billion of the Equity Method investment yet to be delivered to OpenAI, the burden of related losses is expected to decline in the near future, according to analysts.

"We would be aggressive buyers of this long-term GenAI winner, Microsoft ( MSFT ) remains our Top Pick in Large Cap Software," Morgan Stanley stated.

The brokerage raised its price target on the stock to $650 per share from $625, with an overweight rating.

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