Microsoft Corporation (NASDAQ:MSFT) shares are yet to price in the next wave of cloud and artificial intelligence (AI) growth coming for the company, analysts at Wedbush believe.
In a note to clients ahead of Microsoft’s annual shareholder meeting, the analysts wrote that the company has a strong competitive cloud edge when compared to rivals Amazon and Google.
They also highlighted that from their conversations with Microsoft customers and partners, and field checks it has become crystal clear to them that the monetization opportunities around deploying AI and ChatGPT in the cloud present a “transformational opportunity.”
“We estimate for every $100 of cloud Azure spend with Microsoft the last few years there is an incremental $35 to $40 of AI spend for [Microsoft CEO Satya] Nadella & Co. looking ahead,” they wrote.
“We look forward to hearing [at the annual shareholder meeting] any comments from Nadella & Co. on the company's AI strategy post the OpenAI soap opera with a bullish strategic outlook that is essentially the torch bearer of the global AI revolution along with the Godfather of AI Jensen and Nvidia.”
The analysts believe ChatGPT will be the “next leg of the growth stool” for Microsoft, in addition to the company’s cloud and underlying Office 365/Windows ecosystem comprising bigger and bigger piece of the company going forward and spurring growth and margins into the 2024 and 2025 financial years.
“While AI use cases will build markedly in fiscal 2024, it's clear fiscal 2025 for the company remains the true inflection year of AI growth with pricing, beta customers, and use cases all being rolled out over the next three to six months," they wrote.
They also expect interest in Copilot to add another $20 billion to Microsoft’s topline by the 2025 financial year.
“Copilot continues to be a focus going forward as hundreds of organizations wait in line for various use cases with AI technology including Copilot for Power Platform, Power Pages, Dynamics 365, and Windows as users seek to improve productivity as it becomes generally available,” they wrote.
The Wedbush analysts reiterated their ‘Outperform’ rating on the stock and US$425 price target.
Shares of the company traded at about US$371 on Thursday afternoon and have gained 54.8% in the year to date.
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