TLDR
- Microsoft rejected reports that Xbox Series X/S would be its last physical console generation
- The company confirmed active investment in future first-party consoles through its AMD partnership
- Mizuho analyst Jordan Klein called Microsoft stock “free money” at the $515 level
- OpenAI’s $300 billion Oracle partnership has raised concerns about Microsoft’s Azure business
- Microsoft shares are up 26.32% over the past 12 months but down 6% from July highs
Microsoft shares moved higher Monday after the company addressed market speculation about its Xbox hardware business. The stock gained 1.04% as the tech giant pushed back on reports suggesting it would abandon physical consoles.
Reports had circulated claiming Xbox Series X/S would be Microsoft’s final physical console. The speculation suggested the company planned to shift entirely to digital distribution through Xbox Game Pass.
Microsoft provided a direct response to Windows Central. The company stated it is “actively investing in our future first-party consoles and devices designed, engineered and built by Xbox.”
Microsoft pointed to its existing agreement with AMD as evidence of continued hardware plans. AMD is developing technology for upcoming Xbox devices. This includes the ROG Xbox Ally scheduled for release later this month.
The rumors weren’t entirely unfounded. Xbox Series X/S sales have underperformed compared to previous generations. Microsoft has shifted focus toward cloud gaming and cross-platform availability.
The company launched Xbox Play Anywhere to expand device compatibility. It has also relaxed exclusive game policies. Many first-party titles now release on Sony and Nintendo consoles.
Analyst Sees Buying Opportunity
Separately, Mizuho analyst Jordan Klein issued a bullish call on Microsoft shares. Klein described the stock as “free money” at the $515 price level.
The analyst questioned ongoing pressure on the stock related to OpenAI concerns. Microsoft’s Azure cloud business has benefited from its relationship with OpenAI. However, OpenAI recently struck a $300 billion multiyear agreement with Oracle for cloud services.
Klein views the Oracle transition as a 2027 story rather than an immediate threat. He noted OpenAI’s data center buildout represents a medium-term concern. Azure currently serves as OpenAI’s primary cloud partner.
Microsoft stands to benefit from increased usage of Sora, OpenAI’s AI video app. Klein wrote that if Sora 2 invitations expand, “Azure workloads will DIRECTLY BENEFIT in coming weeks and months.”
Wall Street Consensus
The analyst consensus rating for Microsoft is Strong Buy. This rating is based on 34 Buy ratings and a single Hold rating from the past three months.
Wall Street analysts set an average price target of $628.05 for the stock. This represents potential upside of 20.17% from current levels.
Klein noted investors have recently rotated into newer AI plays like Oracle and Bloom Energy. This rotation has pressured Magnificent Seven stocks including Microsoft, Meta and Amazon since late August.
The recent stock weakness has lowered expectations for Microsoft’s next earnings report. Klein suggested Microsoft represents a “coiled-spring laggard” that investors should consider.
Microsoft shares have gained 24.84% year-to-date. The stock is up 26.32% over the past 12 months. These gains are primarily attributed to the company’s AI initiatives rather than its Xbox gaming division.
Microsoft traded near $515 when Klein issued his note to clients expecting an October rebound.
