Microsoft's AI Chatbot Could Bring 21% In Gains For Stockholders, But Analysts Are Torn Over Cloud Biz

Equity research firm Davidson is optimistic about the future of Microsoft MSFT.

Analysts Gil Luria and William Jellison initiated coverage and are expecting the company’s stock to gain over 21% in the next year, projecting a price target of $270 against a current price of $223.

Microsoft’s stock, however, took a turn for the worst Wednesday as UBS analyst Karl Keirstead downgraded the company from Buy to Neutral and lowered the price target from $300 to $250, citing a softening outlook for Microsoft Azure and Office.

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Microsoft shares are down 2.61% on Thursday and 5.47% in the past five days.

For Davidson, holding Microsoft is not in question for any investor. The only question is how much to hold.

"Almost all equity investors already own MSFT, which currently represents 5% of the SP500 capitalization," wrote the Davidson analysts, who expect the company to be at least as resilient as its Apple AAPL, Amazon AMZN and Alphabet GOOGL.

Microsoft and OpenAI: Microsoft’s $1 billion investment in artificial intelligence platform OpenAI could start bearing fruit as the company prepares to add ChatGPT — OpenAi’s chatbot — to Bing.

“We believe incorporating ChatGPT capabilities into Bing may provide Microsoft with a once-a-decade opportunity to unseat Google's Search dominance,” wrote the Davidson analysts.

For Google, this might mean risking a disruption in its current ad-selling model by venturing into including its own AI platform in its flagship search engine. Google’s AI is reportedly not yet as capable as ChatGPT.

Azure, a bone of contention: Davidson is expecting Azure (Microsoft’s cloud computing platform) to continue “to garner the most investor attention and at least maintain market share, but with decelerating market growth.” They present Azure as a source of gains for its business model.

UBS’ downgrade of Microsoft was more focused on the fact that the platform’s growth is likely to decelerate, hence the downgrade.

"Azure is entering a steep growth deceleration that could prove worse than investors are modeling," wrote Keirstead.

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