As one of the Big Tech companies spending heavily on artificial intelligence infrastructure, Microsoft Corp. is a clear artificial-intelligence beneficiary through its cloud-computing unit. But investors could be overlooking where else the company can have an AI advantage.

In a note Monday, Guggenheim analyst John DiFucci upgraded Microsoft’s stock
MSFT

+1.60%

to buy from neutral and introduced a price target of $586. With the rating change, all 61 firms polled by FactSet give Microsoft a buy or equivalent designation.

Microsoft has a dual advantage in AI that DiFucci said will be on full display this earnings season.

The cloud-computing businesses of all the Big Tech companies will be under careful scrutiny this week as companies report, as analysts regard the business segment as an important bellwether of AI monetization. Microsoft’s Azure unit is especially well-positioned going into its fiscal 2026 first-quarter report on Wednesday, DiFucci pointed out.

The robust 39% year-over-year growth Azure demonstrated in the June quarter should “follow through to revenue growth in excess of consensus estimates” for the next year and likely beyond, DiFucci wrote. Bernstein analyst Mark Moerdler had a similar view, writing in a note last week that Azure could post 40% year-over-year growth this upcoming earnings report.

But beyond its strong Azure performance, Microsoft has a secret weapon that other big AI names don’t have: a robust high-margin software business that can offset the capital expenditures needed to build AI infrastructure. DiFucci points to Microsoft’s two near-monopolies in Office and Windows.

First, the position gives Microsoft a unique ability to “directly monetize AI by charging more on top” for its Office products, as Microsoft recently increased the price for its Microsoft 365 consumer subscription by 30% a year for the inclusion of Copilot. By doing so, Microsoft is bringing in 30% more revenue on a $6.23 billion business “at likely close to 100% real profit margin,” according to DiFucci, meaning that there are few costs associated with the incremental revenue. It’s a playbook that Microsoft can also apply to its enterprise customers, leading to revenue growth for M365 Commercial.

The second, and perhaps most overlooked, piece is the Windows business. While Windows makes up a relatively small portion of total revenue —around 10% before a recent re-segmentation — it remains “crucial for profitability,” according to DiFucci, who estimated that Windows business accounts for around 20% of Microsoft’s profits. Additionally, the looming Windows 10 end of life, now expected to extend into 2026, is set to provide an unexpected tailwind for PC shipments and Windows sales. The segment can provide a significant cushion for the bottom line against the “lower-margin Azure business” going forward, according to DiFucci.

Investors worried about the cost of the AI race can be assured by Microsoft’s highly lucrative monopolies, which can help the stock stay on track even if the AI trade falters, in DiFucci’s view.

“We believe margin-rich businesses like Windows and
M365 have allowed the company to buffer headwinds in the prior investment cycle in Public Cloud, and we do not see any reason why this won’t be the case in the current AI investment cycle,” DiFucci wrote.