Microsoft Has Significant Monetization Opportunity From AI-driven Productivity: Analysts

Mizuho analyst Gregg Moskowitz maintains Microsoft Corp MSFT with a Buy and raises the price target from $300 to $315.

On March 16, MSFT announced Microsoft 365 Copilot, a generative AI tool combining large language models (LLMs) with data resident in Microsoft Graph and Microsoft 365 apps. 

MSFT also noted that every Microsoft 365 Copilot feature had passed privacy checks subject to adjustments to the GenAI engine. 

Select commercial customers are currently testing Microsoft 365 Copilot. 

Notably, MSFT will shortly state pricing and licensing specifics. While the analyst eagerly awaits more information, he believes Microsoft 365 Copilot's value-add supports significant monetization over time.

MSFT provided examples illustrating how users can generate AI output following voice or text-based requests. Following disappointing 2Q results, the analyst emphasized not underestimating the potential for AI to influence the narrative later this year meaningfully. 

It is becoming increasingly clear that this is developing sooner than expected, and analyst continues to see vast AI applicability for MSFT across consumer and enterprise use cases.

RBC Capital analyst Rishi Jaluria reiterates Microsoft with an Outperform and a $285 price target.

Microsoft's AI demo impressed the analyst and noted that if the General Availability (GA) product ends up being half as good, Microsoft 365 should be exponentially better than it is today. 

Microsoft's update comes days after Alphabet Inc GOOG GOOGL Google's introduction of similar AI features across Google Workspace.

Jaluria sees a couple of paths to monetization. Most likely, Microsoft could use the Teams/Power BI monetization strategy, selling Copilot as part of an existing (or a new higher-priced) O365/M365 SKU and, eventually, roll out a standalone offering (like Teams Premium). 

Less likely, Microsoft could use the GitHub Copilot playbook, selling Copilot as an add-on. Either way, this enhances the Microsoft 365 value proposition and stickiness. Usage also provides a path toward indirect monetization.

Price Action: MSFT shares traded higher by 1.28% at $279.93 on the last check Friday.