Microsoft (MSFT) investors are watching the durability of Azure's growth and the company's evolving relationship with OpenAI ahead of fiscal Q1 results, Morgan Stanley said Thursday in a report.

Azure's momentum appears solid with expected constant-currency growth of 39%, topping Microsoft's 37% guidance, amid strong third-party sales checks, better availability of graphics processing units, and upbeat survey data from chief information officers, the report said.

Guidance of 37% to 38% Azure growth for the December quarter would reinforce the view that enterprise AI demand remains strong, while commentary on the earnings call, along with trends in commercial bookings and remaining performance obligations, will be key to sustaining that optimism, Morgan Stanley said.

"Fiscal Q1 can be a positive catalyst for shares as Microsoft demonstrates it can sustain top-line momentum," driven by the breadth of the company's portfolio aligned to key CIO priorities and secular trends, the report said.

While Microsoft's equity stake in OpenAI will remain a near-term drag on reported earnings per share, the company is expected to hit the $13 billion cap on those losses by fiscal Q4, and that milestone may unlock EPS growth above 20% in fiscal 2027, Morgan Stanley said.

Quarterly results are due Oct. 29.

Morgan Stanley has an overweight rating on Microsoft stock with a $625 price target.

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