With the general availability release of the Copilot AI assistant tool in Microsoft 365 fresh out the oven, Microsoft (NASDAQ:MSFT) has no intention of slowing down the pace a bit; this week will see the GitHub Universe user conference take place (November 8-9).
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As the GitHub Copilot has already attracted more than 1 million paid users, Piper Sandler analyst Brent Bracelin thinks the event will offer an opportunity to shine the spotlight on the popularity of AI coding companion tools. “We estimate the GitHub platform and AI companion tools combined have $5B+ ARR scale potential over 3-5 years after surpassing $1B in ARR last year,” the analyst said. “This small but highly strategic product family could further reinforce our bullish stance on MSFT and potential gains ahead as it leverages a first-mover advantage in generative AI.”
The product family might be relatively small in Microsoft terms, but it should also be remembered that the acquisition of GitHub in June 2018 for $7.5 billion represents the 6th largest acquisition in the tech giant’s history while also boasting one of the highest premiums. Nevertheless, it looks like it is “paying off both strategically and financially.”
Driven by growing enterprise adoption, during the first four years, GitHub ARR (annual recurring revenue) tripled to exceed $1 billion last year at a 4-year CAGR (compound annual growth rate) of 35%. The proof is in the pudding: currently, 76% of Fortune 500 companies use GitHub to build, ship, and maintain code.
The impressive numbers don’t stop there. The developer installed base on GitHub numbers over 100 million today, almost a fourfold increase from the platform’s 28 million developers in 2018.
Meanwhile, GitHub Copilot has already established itself as the foremost AI companion tool, enabling developers to achieve significant productivity increases of up to 55% in their coding endeavours. “We estimate this new AI product with $19/mo pricing for the business SKU could eventually see 16% attach-rate within the GitHub installed base creating a new $3B ARR opportunity alone,” Bracelin further said.
So, how does this ultimately all translate to investors? Bracelin maintained an Overweight (i.e., Buy) rating on MSFT shares, backed by a $425 price target. Should the figure be met, in a year’s time, investors will be pocketing returns of ~18%. (To watch Bracelin’s track record, click here)
Microsoft stock is one of those rare beasts – a name with big coverage yet almost all of it positive; currently, one skeptic aside, all 31 other recent ratings are positive, making the consensus view here a Strong Buy. The average target stands at $408.83, suggesting shares will surge 13% in the months ahead. (See Microsoft stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
