Investing.com -- Bank of America reinstated coverage of Microsoft with a Buy rating and a $500 price target in a note on Tuesday, arguing the company sits “at the center of the AI supercycle.”

In a note led by analyst Tal Liani, BofA calls Microsoft “a primary beneficiary of AI monetization,” citing durable multiyear growth across its cloud and software franchises.

According to the note, Microsoft’s advantage “lies in its ability to capitalize on AI across both infrastructure and applications.”

BofA believes Azure provides “the compute and data foundation for enterprise AI workloads,” while software products including 365, Dynamics, GitHub and Windows “embed into everyday tasks that drive attach and consumption.”

The firm’s $500 target, which implies about 31% upside, is based on a 24x CY27 estimated P/E multiple, a premium to peers that BofA argues is justified by Microsoft’s expected 15% to 17% annual revenue growth over the next three years. Intelligent Cloud is forecast to grow 24% to 28% as AI workloads scale.

BofA also addresses debates it says will shape Microsoft’s long-term trajectory. These are said to be the durability of its AI-related backlog, the implications of its partnership with OpenAI, and whether the current AI cycle reflects a bubble or a lasting shift.

While margins are likely to compress as capex rises from $44 billion in 2024 to roughly $143 billion by 2028, BofA expects Microsoft to sustain operating margins above 46%.