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Through our partnership with OpenAI, the brain behind ChatGPT, Microsoft (NASDAQ:MSFT) has established itself as a major player in the GenAI space. But according to Morgan Stanley analyst Keith Weiss, Microsoft’s presence in this space is about to get even stronger.
“On the back of improving overall IT spend within a well-run Microsoft, strong positioning against key long-term themes within software is a formula for sustained high-teens EPS growth going forward.” “The level of earnings growth is not yet reflected in the P/E ratio,” the five-star analyst opined.
However, those looking for concrete proof of Generative AI’s success, a quantification of its contributions, particularly within M365 Copilot and Azure, may be disappointed by the upcoming FQ2 announcement. Weiss said management is “likely moving toward more qualitative discussions.” About the innovation cycle. “However, we are confident that investors’ patience will be rewarded,” Weiss continued.
Management is unlikely to prioritize AI’s contribution to Azure growth for the foreseeable future, given the lack of guidance on its impact in Q2. So Weiss looked to recent research from banking companies to examine the opportunities ahead.
A CIO survey conducted in January confirmed that IT budgets are expected to increase in 2024. This is supported by trends seen in generative AI and public cloud, and the results show that Microsoft is particularly well-positioned to leverage capital. 63% of CIOs intend to use Microsoft Generative AI services in the next 12 months, and 37% plan to adopt Azure OpenAI services, up from 27% in Q2 2023.
In terms of investor expectations, the argument is that Azure growth in Q2 is around 1-2%, with year-over-year growth of around 27-28%, consistent with the growth seen in Q1. is shown.
Considering GenAI’s future opportunities, Weiss believes a higher price target is necessary. Weiss’ target ranges from his $415 to $450, representing his 11% upside from the current stock price. The analyst rating remains “overweight” (i.e. “buy”). (Click here to see Weis’ track record)
MSFT is that rare breed, a stock that everyone agrees has a lot of coverage. He has received 33 analyst reviews in the past three months, all of which are Buys, so unsurprisingly the consensus here is Strong Buy. The current average price target is $438.55, suggesting the stock will return 8% in one year. Don’t be surprised if analysts are eager to raise their targets soon. (look Microsoft stock price prediction)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. Content is for informational purposes only. It is very important to perform your own analysis before making any investment.
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