A general view outside the Microsoft Experience Centre in Oxford Circus on April 26, 2023 in London, England. Microsoft's proposed acquisition of the video game developer Activision Blizzard was blocked by the UK's Competition and Markets Authority, which said the deal would reduce innovation and consumer choice. Microsoft, which needs the approval of regulatory bodies in the UK, United States and European Union, said it would appeal the decision. (Photo by Belinda Jiao/Getty Images)
Microsoft Corp. (NASDAQ: MSFT) is among the frontrunners in the artificial intelligence arms race. An analyst at Wedbush said on Monday he is incrementally positive about the company and its AI prospects.
The Microsoft Analyst:Daniel Ives maintained an Outperform rating and increased his price target from $340 to $375.
The Microsoft Thesis: Microsoft’s resilient cloud deal flow and AI monetization opportunity make Wedbush more bullish on the software giant, Ives said in a note. The analyst also said the company firmly remains on the “Wedbush Best Ideas List.”
The Bing app is seen in the Apple App Store in this photo illustration in this photo illustration on 30 May, 2023 in Warsaw, Poland. (Photo by Jaap Arriens/NurPhoto via Getty Images)
The analyst sees ChatGPT/AI monetization on the consumer and enterprise fronts, combined, would add $40-$50 per share to the company’s sum-of-the-parts valuation.
“We believe Nvidia’s ‘jaw-dropping guidance’ heard around the world is a direct AI barometer for Redmond as our recent checks further confirm the monetization opportunity for MSFT is happening much sooner than the Street had anticipated in the field,” Ives said.
Nvidia Corp. (NASDAQ:NVDA) last weekreported stellar first-quarter results as the chipmaker rides an artificial intelligence-powered momentum. The company issued an upbeat outlook on surging demand for its data center products.
An exterior view of the NVIDIA headquarters on May 30, 2023 in Santa Clara, California. Chipmaker NVIDIA reached a $1 trillion market cap at the open bell of the NYSE on Tuesday morning. The company is forecasting second quarter sales of $11 billion, 50 percent higher than analyst estimates of $7.15 billion. (Photo by Justin Sullivan/Getty Images)
For every $100 of Cloud Azure spend with Microsoft seen over the last few years, there is an incremental $35-$50 AI spend, the analyst said. This would change the game and the total addressable market for the company in the future, he said. He also repeated his $800 billion estimated market opportunity for AI.
Microsoft shares have run up in 2023 as investors took stock of the fact that less than 50% of the workloads have moved to the Cloud, Ives said. He expects the company to gain a share in the enterprise market against market leader Amazon, Inc.’s (NASDAQ:AMZN) AWS over the next 12-18 months, with AI front and center as a catalyst.
Ives’ thesis on Microsoft has centered around:
Cloud and underlying Office 365/Windows ecosystem comprising a bigger chunk going forward
Microsoft hitting the next gear of growth with ChatGPT and AI
Microsoft Price Action: Microsoft shares closed Friday’s session at $332.89, up 2.14%, according to Zenger News Pro data.
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