Microsoft’s (NASDAQ:MSFT) June-quarter results gave investors evidence that its huge AI spending is translating into stronger growth and healthy economics. After concerns over soaring capital expenditure weighed on the stock earlier in the year, the latest results suggested Microsoft can expand its AI infrastructure while keeping its margins under control.

That is also the conclusion reached by Stifel analyst Brad Reback, who has upgraded Microsoft to Buy (from Hold) and raised his price target from $530 to $575, implying the stock will gain 15% over the following months. (To watch Reback’s track record, click here)

Essentially, Reback has become more confident that Microsoft can sustain revenue growth in the mid-to-high teens, helped by its relatively model-agnostic approach to AI. The increasing availability and improvement of open-weight models should give Microsoft more flexibility across Azure and Copilot rather than leaving the company dependent on any single model provider.

Just as importantly, Reback sees signs that Microsoft is getting more efficient with the infrastructure it already has. Improvements across Azure’s silicon, models and software are allowing the company to squeeze more usable capacity out of its data centers. That could translate into additional revenue without requiring a proportional increase in physical infrastructure.

After a couple of less impressive periods, Azure growth accelerated in the June quarter, and Reback expects the business to continue delivering roughly 200 to 300 basis points of upside to expectations. He points to Microsoft’s improving ability to bring hardware online and make it revenue-generating more quickly. CFO Amy Hood has said the company has substantially reduced the time between hardware arriving and becoming operational, thereby allowing more of its existing capacity to be monetized.

OpenAI represents another important piece of the equation. Reback believes Microsoft’s Azure revenue should benefit from stronger activity at OpenAI, both through increased Azure usage and Microsoft’s revenue share. Meanwhile, changes to the companies’ agreement should reduce some of the payments Microsoft previously made to OpenAI.

On the Microsoft 365 side, Reback sees Copilot as a significant source of longer-term growth. Paid Copilot seats reached around 30 million in the latest quarter, while new products and Microsoft’s expanding consumption-based offerings should encourage customers to use more AI services. GitHub is also beginning to benefit from its shift toward a consumption model.

Reback expects these higher levels of usage and revenue per customer to offset an eventual slowdown in seat growth as Microsoft 365 approaches an enormous installed base.

MSFT stock has gained 27% since its latest quarterly readout, and the analyst sees more upside ahead. “Overall,” Reback summed up, “MSFT clearly turned the corner post the June quarter print and with our growing sense the company can drive sustained strong Azure upside (200-300 bps) stemming from incremental capacity monetization, reduced LLM R&D intensity and accelerating OAI revenue contribution (Azure usage and revenue-share) given the uptick in OAI’s business, we expect recent stock momentum to continue into 2H.”

Barring one analyst who remains on the sidelines, all 33 other recent MSFT reviews are also positive, making the consensus view a Strong Buy. The $573.17 average price target closely resembles Reback’s objective. (See MSFT stock forecast)