Microsoft Corp (NASDAQ:MSFT) is set to benefit from OpenAI’s rapid growth as the AI company experiences a surge in users and secures new funding, Jefferies analysts believe.
The analysts highlighted that this expansion strengthens Microsoft's role as a key cloud provider and strategic partner of OpenAI.
"We believe recent surge in ChatGPT users and OpenAI's new funding round benefit Microsoft given this surge boosts OpenAI's growth, compute needs, and valuation, of which Microsoft has a revenue share, cloud provider role, and ownership stake," they wrote.
OpenAI’s latest $40 billion funding round, which values the company at $300 billion, marks a significant jump from its $157 billion valuation in October 2024.
The funding aligns with a surge in user adoption, with analysts noting that ChatGPT hit 500 million weekly users, up about 100 million from 400 million in February.
Analysts attribute this growth in part to OpenAI’s latest image-generation capabilities, with the company reportedly adding 1 million users in an hour.
The surge in demand has also exposed infrastructure challenges, with OpenAI’s CEO publicly stating that their "GPUs are melting" and openly calling for "GPU capacity in 100K chunks."
Analysts note that "there are few vendors that can deliver that scope of capacity, with any deal likely being in the approximately $1 billion to $2 billion per year range depending on GPU/duration of contract."
Microsoft’s M365 Copilot could also see renewed momentum as more advanced reasoning capabilities are integrated, Jefferies believes.
“In our view, as enterprise rolls out reasoning capabilities within M365 Copilot, this could help to reignite Microsoft’s momentum,” they wrote.
The analysts awarded Microsoft a ‘Buy’ rating and $500 price target, representing upside of 31% from its share price at the time of writing.