Just weeks after Microsoft’s (NASDAQ:MSFT) Copilot AI assistant tool became generally available in Microsoft 365, early indicators suggest it’s poised to become a blockbuster product.
That is the conclusion reached by Wedbush’s Dan Ives, a 5-star analyst rated in the top 2% of the Street’s stock pros. He based his assessment on “incrementally positive AI customer checks with ‘game changing’ Co-Pilot monetization now on the doorstep for MSFT into 2024.”
Ives further elaborated, saying, “Over the last few weeks in our numerous conversations with Microsoft customers, partners, and field checks it has become crystal clear to us that the monetization opportunities around deploying AI and ChatGPT in the cloud is a transformational opportunity across the industry with Redmond in the driver’s seat.”
How much of an opportunity? Ives reckons that for every $100 spent on cloud Azure over the last few years there is an “incremental $35-$40 of AI spend” ahead. Essentially, Ives anticipates 50% of the installed base will be using the AI functionality within the next 3 years in the enterprise/commercial sector.
Although there will be a noticeable increase in AI use cases in FY24, it is in fiscal year 2025 that will see the “true inflection year of AI growth,” as the next 3-6 months will witness the rollout of pricing, beta customers and use cases. The result of which will potentially be an addition of another ~$20 billion to the tech giant’s top-line by FY25.
The good news for investors, says Ives, is that the next wave of cloud and AI growth has yet to be priced into the stock while the significance of the opportunity should not be underestimated. “We continue to believe this is a 1995 Moment’ with a transformational tech spending wave not seen since the start of the Internet in the mid 90’s with AI now hitting the shores of the tech sector,” he summed up.
So, to reflect the positive outlook, a price target hike is due. Ives therefore raised his target from $400 to $425, now making room for gains of 13% from current levels. Ives’ rating stays an Outperform (i.e., Buy). (To watch Ives’ track record, click here)
Overall, almost all of Ives’ colleagues agree. The stock currently has a Strong Buy consensus rating, based on 30 Buys and 1 Hold. At $409.62, the average price target could yield returns of 9%. (See Microsoft stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.