Microsoft’s Twin Pivot: Super-Sized Data Centres Meet In-House AI Models

Microsoft’s stock surged nearly 4% this week as investors digested two powerful narratives: a sweeping expansion of its cloud infrastructure and a strategic move to cut ties with OpenAI by building proprietary artificial-intelligence models. The combination has reframed the debate around the tech giant from cost concerns to revenue potential.

Morgan Stanley ignited the first leg of the rally on Wednesday with a research note arguing that the market has severely underestimated the future earnings from Microsoft’s AI infrastructure. The bank calculates that the company’s data-centre footprint, currently around 5 gigawatts in fiscal 2024, will swell to nearly 20 gigawatts by fiscal 2028. Even if revenue per megawatt slides from the present range of $20 million to $30 million into the upper tens of millions, the absolute uplift remains substantial.

The second catalyst came the following day with details of Microsoft’s plan to unveil a proprietary coding model at its Build 2026 conference in San Francisco on 2–3 June. A renegotiated contract with OpenAI, struck in April 2026, now gives Microsoft the right to develop models that compete directly with those of its former partner. The internal portfolio will span transcription, language processing, image generation and logical reasoning, allowing Microsoft to lower costs and reduce dependence on both OpenAI and Anthropic — a move seen as critical as GitHub Copilot loses ground to rival tools such as Anthropic’s Claude Code and the Cursor editor.

By Thursday’s close, Microsoft’s shares had climbed 3.6%, outperforming a tepid broader market where the S&P 500 added just 0.5% and the Nasdaq Composite rose 0.6%. On Wednesday the stock had already gained 3.4% to $426.99, briefly touching a 4.1% intraday high. The market capitalisation stands at roughly $3.18 trillion, giving the shares outsized influence on the major indices. The price-to-earnings ratio is 25.4.

Should investors sell immediately? Or is it worth buying Microsoft?

From a European perspective, Microsoft trades at €366.60 — about 22% below its 52-week peak of €467.45. The 14-day relative strength index sits at 41, signalling neither overbought nor oversold territory.

The fundamental backdrop supports both stories. In the third quarter of fiscal 2026, Microsoft posted revenue of $82.9 billion, up 18.3% year-over-year, with earnings per share of $4.27 topping analyst forecasts of $4.07. Cloud revenue hit $54.5 billion, a 29% increase, while Azure accelerated 40%. The commercial remaining performance obligation doubled to $627 billion, and the annualised AI revenue run rate surpassed $37 billion, a 123% jump.

Wall Street remains overwhelmingly bullish. Of the 58 analysts covering Microsoft, 55 rate it a buy. Piper Sandler has a $540 target, citing lower royalty payments to OpenAI as a margin tailwind. Morgan Stanley’s $650 target implies more than 50% upside from current levels, and the consensus average sits around $560.

Microsoft at a turning point? This analysis reveals what investors need to know now.

The next inflection point will be CEO Satya Nadella’s keynote on 2 June, where he is expected to detail how the new in-house models will be embedded into Microsoft 365 and Azure. Investors are waiting to see whether the company can convert its sprawling infrastructure capacity into sticky, recurring cloud revenue — and whether the shift toward self-built AI can arrest market-share losses at GitHub. The July earnings release for the fourth fiscal quarter will provide the first hard evidence.

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