A Mizuho analyst thinks Wall Street is overreacting to the idea that Microsoft's cloud unit could lose OpenAI business down the road.

Microsoft's stock is a "coiled-spring laggard" that could bounce back later this month, according to one analyst.

Is Microsoft Corp.'s stock "free money," now that it's down more than 6% from its intraday high in late July despite strong earnings posted since then?

That's the view of Mizuho desk-based analyst Jordan Klein, who remains bemused by the fact that the stock continues to face pressure over what he deems to be concerns about the sustainability of OpenAI business going forward.

Microsoft's $(MSFT)$ cloud-computing unit has benefitted from the company's close relationship with OpenAI, which has now verged into frenemy territory. Microsoft is still an investor in OpenAI, but the ChatGPT creator has glimpsed an opportunity to get cloud services more cheaply in partnership with Oracle Corp. $(ORCL)$, and those two companies reportedly have struck a $300 billion multiyear agreement.

Investors seem afraid of Microsoft's stock, according to Klein, with OpenAI "spending like a drunken sailor to build out their own data-center compute capacity so they can eventually move off Azure and get 100% of the profit," in his view. But he cautions that this is a medium-term concern, since the Oracle transition is "more a 2027" story.

Another fear related to Microsoft is that OpenAI will roll out technologies, including at next week's developer event, that will challenge traditional software vendors like Microsoft and social-media companies like Meta Platforms Inc. (META) But Klein is doubtful that OpenAI will crush legacy software offerings and noted that Microsoft right now stands to benefit from usage of Sora, a new AI-focused video app run by OpenAI.

"If Sora 2 invitations expand and video content creation jumps, Azure workloads will DIRECTLY BENEFIT in coming weeks and months," Klein wrote - noting that Microsoft, not Oracle, is currently OpenAI's big data-center partner.

Microsoft's stock was trading near $515 when Klein penned his note to clients, and he called the stock "free money" at that level given his expectation for a rebound later in October.

In general, though, he noted that investors have been flocking to "new AI winners" beyond the "Magnificent Seven," especially given the middling performance of Microsoft, Meta and Amazon.com Inc. (AMZN) shares since late August. That's driven investors who had overweight positions in those stocks to chase highflyers like Oracle, Bloom Energy Corp. (BE), CoreWeave Inc. (CRWV), he theorized.

This supports the Microsoft bull case as well, according to Klein, since the big gains for the fresher AI plays seem partly driven by "FOMO," or the fear of missing out.

Stocks like Microsoft surely "are lagging and that is frustrating, but you have to have some coiled-spring laggard names in your portfolio and cannot own and chase all the recent winners higher and higher," he wrote. Microsoft's weak stock performance recently has only lowered the bar for its next earnings report, Klein added.