Microsoft Corp. (MSFT  ) stock gained nearly 2% Tuesday morning as investors returned to mega-cap AI names following the recent technology sell-off, while analysts remained focused on accelerating Azure growth and the rising cost of expanding AI infrastructure.

The rebound extended to other major technology names, including Meta Platforms Inc. (META  ), while Technology gained about 1.3% and the S&P 500 rose roughly 0.4%.

The Nasdaq advanced 0.67%, although broader market breadth remained mixed.

Ives Says Investors Should Look Beyond the Sell-off

Tech analyst Dan Ives called the recent technology pullback a "gut check" and said investors should not "panic."

Ives identified Microsoft alongside Palantir Technologies Inc. (PLTR  ), NVIDIA Corp. (NVDA  ) and Apple Inc. (AAPL  ) among stocks he favors over the next five years.

However, he said AI companies face increasing pressure to demonstrate tangible returns from their spending, arguing they have "like a six-month window" to prove monetization.

Azure Growth Keeps Analysts Constructive

Microsoft remains in focus after stronger-than-expected quarterly results and guidance showed continued acceleration in cloud and enterprise software.

BNP Paribas analyst Stefan Slowinski maintained an Outperform rating and raised his price forecast to $632 from $604.

Slowinski highlighted 48% constant-currency Azure growth in the fiscal first quarter, above management's 44%-45% guidance, while Microsoft 365 Commercial Cloud grew 18%.

He expects further acceleration in the fiscal second quarter, with Azure growing 49%-50% and Microsoft 365 Commercial Cloud increasing 19% in constant currency.

Slowinski raised his fiscal 2027 revenue estimate by about 0.5% and increased his fiscal 2028 and 2029 cash-capex estimates by 9% and 16%, respectively.

However, he said Microsoft could move from positive free cash flow in the first half of fiscal 2027 to negative free cash flow in the second half if infrastructure spending continues at its current pace.

Luria Sees Funding Advantage

Ahead of earnings, D.A. Davidson Managing Director Gil Luria slightly favored Microsoft over Alphabet and Amazon.

Luria expected Azure growth to accelerate and viewed Microsoft's free-cash-flow generation as an advantage in financing AI investment without necessarily relying on additional debt or equity.

Thill Highlights Cloud And Software Momentum

Following the results, Jefferies analyst Brent Thill pointed to accelerating Azure and Microsoft 365 growth, strong remaining performance obligations and lower-than-expected capital spending.

Thill said Microsoft's next challenge is balancing continued AI infrastructure spending with growth and profitability. He also highlighted resilient operating margins and the relatively early stage of enterprise AI adoption.

Munster Questions Software Growth Durability

Deepwater Asset Management's Gene Munster noted that Microsoft's software growth accelerated to 17% in September from 14% in June.

However, he questioned whether that pace can persist as AI reshapes knowledge-work software demand.

Munster also said capacity constraints held back Azure growth, reinforcing Microsoft's need to continue investing heavily in infrastructure.

Analyst Consensus

Microsoft carries a Buy consensus rating with an average consensus price forecast of $619.

Recent actions include Bernstein maintaining Outperform and raising its forecast to $722, RBC Capital maintaining Outperform with a $640 forecast, and Citigroup maintaining Buy while raising its forecast to $680.

Top ETF Exposure

• Vanguard Morningstar Growth ETF (VUG  ): 9.74% Weight
• iShares Global Tech ETF (IXN  ): 9.91% Weight
• Xtrackers S&P 500 Scored & Screened ETF (SNPE  ): 9.80% Weight

MSFT Price Action

Microsoft shares were up 1.94% at $517.01 at the time of publication on Tuesday, according to Benzinga Pro data.