Analysts Bullish On Microsoft's AI Expansion, Predict Significant Revenue Boost from Copilot, Cloud Services

Wedbush analyst Daniel Ives maintained Microsoft Corp MSFT stock with an Outperform and raised the price target from $400 to $425.

Microsoft is set for significant growth in the AI sector, particularly with the upcoming monetization of its Copilot functionality, which will likely be a game-changer for the company in 2024.

According to Wedbush analysts, more than 50% of Microsoft's installed base is projected to adopt this AI feature for enterprise and commercial use within three years, transforming the company's landscape under CEO Satya Nadella.

Microsoft's real surge in AI use and growth is likely in FY25, with the rollout of pricing, beta customers, and use cases in the next 3-6 months.

The stock has not fully reflected this upcoming wave of cloud and AI growth, with Microsoft gaining a competitive edge in the cloud sector over rivals such as Amazon and Google.

Partner checks indicate strong interest and deployment of Copilot among Microsoft customers, potentially adding around $20 billion to the company's top line by FY25.

Integrating AI and ChatGPT in cloud services presents a transformational opportunity, with Microsoft leading the way. For every $100 spent on Azure cloud services, an additional $35-$40 of AI spend is likely for Microsoft.

Furthermore, Microsoft's cloud services, including Office 365 and Windows ecosystem, are projected to drive more growth and margins in FY24 and FY25. The introduction of ChatGPT and AI represents a new growth phase for Microsoft. Copilot, particularly in Power Platform, Power Pages, Dynamics 365 and Windows, is gaining attention for its potential to enhance productivity.

The analyst projected second-quarter revenue and EPS of $61.02 billion (consensus $56.18 billion) and $2.74 (consensus $2.55).

Oppenheimer analyst Timothy Horan had an Outperform rating with a price target of $410.

At the Ignite 2023 summit, Microsoft emphasized its leadership in AI Copilot technology, marking a significant advancement from concept to practical application, notably with M365 (Office) Copilot.

Early users of Copilot are experiencing a 29% increase in task efficiency and saving up to 10 hours per month. This progress reinforces Microsoft's position as a dominant player in AI and software, enhancing the company's long-term outlook without altering current financial estimates.

The analyst projects second-quarter revenue and EPS of $60.92 billion and $2.74.

Mizuho Securities analyst Gregg Moskowitz reiterated a Buy with a price target of $420.

The analyst virtually attended Microsoft's Ignite 2023. He said the most notable announcement from the event was Microsoft will soon launch new custom-designed silicon chips for AI and cloud use cases.

Management also unveiled many additional platform enhancements and capabilities and expressed excitement around its new Microsoft 365 Copilot tech, he noted.

Notwithstanding a more challenging operating environment, Mizhuo remained confident Microsoft's growth opportunities over the medium term and beyond are more excellent than many realize, and this included significant Generative AI monetization. Microsoft remained a top pick.

The analyst projected second-quarter revenue and EPS of $60.97 billion and $2.75.

MSFT Price Action: Microsoft shares traded higher by 1.50% at $375.16 on the last check Thursday.

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