Microsoft is positioned exceptionally well for a major splash in artificial intelligence that could lift the companys market value another $300 billion this year, according to a new analyst report.
The tech giant is in the drivers seat during a pivotal moment for the tech industry, analyst Wedbush Dan Ives wrote in a note to clients on Monday. He cited Microsofts partnership with OpenAI creator ChatGPT, which Microsoft is using to power its cloud apps and services, and upcoming releases of A.I.-powered products.
Based on the positive trajectory, Ives increased his price target for Microsofts shares this year to $375 from $340, which would raise the companys market cap by over $300 billion. In mid-day trading on Tuesday, the companys shares were at $331, translating into a market value of around $2.5 trillion.
ChatGPT will be the next leg of the growth stool for Microsoft, Ives wrote, adding that the company is just starting to hit its next gear of growth, with ChatGPT and other A.I. technology. Microsofts stock has already gained nearly 40% this year after a $10 billion investment in OpenAI in January.
Ives pointed to jaw-dropping guidance recently announced by chip manufacturer Nvidia as one of the reasons for optimism about tech companies and A.I. Nvidia became the fifth companyafter Apple, Microsoft, Alphabet, and Amazonto reach $1 trillion in market cap on Tuesday. The companys stock has soared since a first quarter earnings report last week that showed higher-than-expected revenues.
But it was Nvidias forecasted sales of $11 billion in the coming quarter, 50% higher than what analysts had predicted, that really shook markets. The exceptional guidance boosted the companys valuation by almost $190 billion overnight, while Bank of America analysts called the projected sales the largest raise they had ever seen, calling the company a top stock pick on the back of major data center investments in generative A.I. and large language models.
Nvidia CEO Jenson Huang, who is positioning his company to be at the center of the A.I. boom, unveiled a wave of new A.I. products and services over the weekend during a presentation in Taiwan. The announcements included a supercomputing platform that companies can use to create A.I. chatbots similar to ChatGPT.
Nvidias massive raise to its guidance shows that companies are ready to spend big on expanding their A.I. capabilities, and those that are fastest to monetize their A.I. products will reap the biggest rewards, Ives wrote.
Microsoft is well-positioned in this respect because of its plans to use ChatGPT in more of its new cloud services, he said. While the companys A.I.-powered Bing search engine has provided information that is riddled with mistakes since its release earlier this year, he suggested that the bigger source of Microsofts revenue growth will be the successful integration of A.I. with its cloud offerings, operated under its cloud computing platform Azure.
It has become crystal clear to us that the monetization opportunities around deploying A.I. and ChatGPT in the cloud is a transformational opportunity across the industry, Ives wrote, and Microsoft is the potential leader. In March, the company began using ChatGPT as a conversational assistant in its cloud apps, and it is being added to Microsofts office apps as well, including Word, Excel, and Outlook.
While new Microsoft A.I. products that substantially lift revenue will not be built overnight as the company tests new features in the coming months, Ives wrote. Still, Microsoft may be ahead of its major competitors in cloud computing, such as Amazons Web Services branch. Ives called A.I. the catalyst in competition between Azure and AWS over the next 12 to 18 months, and said that Microsoft is currently in an enviable position to gain market share in its enterprise business against AWS.
