Microsoft Corp (NASDAQ:MSFT) could be heading into one of its most important growth phases in years, with artificial intelligence poised to drive a sharp acceleration in its cloud business and catch sceptical investors off guard in 2026.
That is the view of Dan Ives, senior technology analyst at Wedbush, who believes the market has yet to fully grasp how central AI is becoming to Microsoft’s future earnings power.
At the heart of the argument is Azure, Microsoft’s cloud platform, which Ives says is on the cusp of a significant AI-led growth shift.
Despite Microsoft’s size and maturity, he argues that investors remain unconvinced about the scale of the opportunity — a disconnect that could create upside surprises over the next 12 to 18 months.
According to Wedbush, Microsoft, Microsoft, sits in what Ives calls the “sweet spot” for enterprise AI adoption. Large organisations are increasingly looking to embed AI into everyday operations, from productivity tools to data analysis and software development, and Microsoft’s products are already deeply embedded across corporate IT systems.
That installed base gives the company a powerful advantage as customers roll out AI at scale.
Recent checks with partners and customers suggest growing momentum behind both Azure and Microsoft’s Copilot AI tools. Copilot is designed to weave AI into familiar applications such as Word, Excel and Teams, helping users automate tasks and extract insights from data.
Ives estimates that this combination of cloud and AI adoption could add around $25 billion to Microsoft’s annual revenue trajectory by the 2026 financial year, a meaningful uplift for a company of its size.
Crucially, Wedbush believes the real inflexion point is still ahead. While AI use cases expanded during 2025, Ives argues that 2026 is when enterprise deployments move from experimentation to widespread adoption.
He expects more than 70% of Microsoft’s commercial customer base to be using AI-driven functionality within the next three years, fundamentally altering the company’s growth profile and margin structure.
Competition is intensifying. Amazon’s cloud arm, Amazon Web Services, and Google’s Google Cloud Platform are both investing heavily to defend and grow their positions.
But Ives believes Microsoft remains the clear front-runner in enterprise-focused, hyperscale AI, largely because it can bundle AI capabilities directly into existing software relationships rather than selling them as standalone tools.
The timing matters. The past month has been choppy for technology stocks, with bouts of risk-off sentiment shaking confidence in some of the biggest AI names. That volatility has prompted questions about whether the tech bull market is running out of steam, despite continued heavy investment by big technology groups in data centres, chips and AI infrastructure.
Ives takes the opposite view. He sees the recent pullback as noise rather than a signal, arguing that the AI revolution is still in its early stages. As more chief information officers work out how AI fits into their organisations, he expects a new wave of large-scale deployments to follow.
In that context, Wedbush maintains an 'outperform' rating on Microsoft with a $600 price target.