Microsoft Likely To Gain From Tech Creation Around Generative AI Given Size, Scale And Deep Pockets: Analyst

BMO Capital analyst Keith Bachman rated Microsoft Corp MSFT as Market Perform and a $265.00 price target. Bachman hosted a call alongside BMO's Semiconductors team with an expert on generative AI. 

The analyst believes companies that can create the best technology long-term around generative AI have the most extensive reach to acquire and label data in a high-quality and cost-effective manner, along with leading tech capabilities. 

The expert thinks Alphabet Inc GOOG GOOGL Google has the most significant advantage, given access to consumer data through search, phone, and email. 

In addition, MSFT should benefit from a durable data advantage given its platform's size and scale, though less so than Google. Specifically, MSFT has the deep pockets to invest in the infrastructure to continue improving ML models and access to data sources, which is essential for models and outcomes to remain instructive. 

However, in most cases, MSFT does not own customer enterprise data in Azure, and thus, BMO's speaker did not think MSFT could use third-party business data to help train AI models. 

Hence, Bachman thinks the AI incremental development in Azure for business use cases may be more of a longer-term benefit. In contrast, he thinks search and personal productivity uses cases are more likely near-term. For example, a near-term use case could use AI to process and explain large legal documents. 

Though Bachman thinks Azure AI may take a bit longer to generate incremental AI-based revenues, he notes that some companies like CarMax Inc KMX have announced solutions based on OpenAI's tech stack. 

The analyst highlighted the comment suggesting gaming is a beneficiary of generative AI technology through the ability to create highly realistic environments. 

Additionally, Bachman believes that GitHub will be a beneficiary, including GitHub Copilot. BMO speaker indicated that the technology is still in the relatively early innings, particularly for business use cases.

Consumer, advertising, productivity, dev, and gaming use cases are more likely near-term, though Azure uses cases are likely longer-term. 

Price Action: MSFT shares traded lower by 2.37% at $251.95 on the last check Tuesday.