Investing.com -- D.A. Davidson hiked its price target on Microsoft (NASDAQ: MSFT ) shares to $600 from $500, reiterating the second-largest company in the world as its top large-cap pick.

The broker cites Azure’s sustained growth momentum and Microsoft’s evolving infrastructure strategy as key drivers behind the price target raise, positioning the company as the leading hyperscaler.

“Microsoft remains our top mega cap pick as it executes Azure growth to extend its lead in AI,” analyst Gil Luria wrote, adding that by “balancing its data center buildout with offloading compute capacity,” Azure is well-positioned to continue gaining share while preserving margins.

To manage surging AI demand, Microsoft is leveraging what the report calls “neoclouds,” such as Oracle (NYSE: ORCL ) and CoreWeave Inc (NASDAQ: CRWV ), for short-term compute overflow.

These are structured as three-year commitments, unlike owned or leased data centers, allowing for a more measured infrastructure expansion.

Crucially, this model enables Microsoft to maintain direct customer relationships even when compute is outsourced—something especially evident with OpenAI, which moved large-scale pretraining workloads to CoreWeave while inference demand remains on Azure.

“By moving that part of OpenAI’s workloads to CRWV, Azure is able to retain the more recurring inference demand (for which Microsoft has right of first refusal) and spread it around based on where the demand emanates from geographically,” Luria explains.

The note argues this setup supports both short- and long-term profitability. Instead of overcommitting to new data center builds that could weigh on gross margins via long-term depreciation, Microsoft is absorbing elevated GPU rental costs as operating expenses.

At the same time, headcount is being optimized through AI-driven efficiency in software development.

D.A. Davidson’s proprietary developer data also supports the bullish view. The analysts noted that “developer activity around Azure continues to accelerate,” with Azure outperforming its hyperscaler peers in services such as Virtual Machines for AI and CosmosDB.

All of this “feeds into our preference for MSFT as both offense and defense,” Luria said.

“Unlike the other Mag6, Microsoft has minimal consumer exposure making it more defensive in case of a slowdown, and yet has dialed in a recurring revenue business around Azure AI making it the best place to play offense,” he added.

Luria’s price target hike reflects his view that Microsoft stock deserves a premium to Oracle due to stronger earnings growth and deeper customer relationships.