Since Microsoft (MSFT) released its fiscal fourth quarter (June quarter) results, investors have been playing the wait-and-see game regarding the cloud business’s growth trajectory. More to the point, notes Wedbush analyst Dan Ives, they would like to know “when the AI monetization opportunity will start to show up in numbers.”
Well, it won’t be long, says Ives. “We believe while management has talked about a ‘gradual ramp’ for AI monetization in FY24 we believe so far the adoption curve is happening quicker than expected based on our recent checks,” the 5-star analyst said. “Our latest Azure checks also show a clear uptick in activity sequentially (AI driven) which gives us further confidence in Microsoft exceeding its 25%-26% Azure growth guidance in FY1Q.”
As Ives has touched base with Microsoft’s customers, partners, and conducted some field checks throughout the quarter, it has become evident that the potential for monetizing AI and deploying ChatGPT in the cloud represents a “transformational opportunity across the industry with Redmond in the drivers seat.”
Microsoft has already announced that Microsoft CoPilot – the AI assistant feature for Microsoft 365 applications – will be priced at $30 per month per user. This is on top of present payments for Microsoft 365 E3, E5, Business Standard, and Business Premium. It’s all a bit of a game changer, believes the analyst, expecting more than 50% of Microsoft’s installed base to use this AI functionality.
Furthermore, Ives reckons that for every $100 of cloud Azure spend made over the last few years, there is an “incremental $35-$40 of AI spend that now is on the table,”
“Our thesis remains that the cloud and underlying Office 365/Windows ecosystem is going to comprise a bigger and bigger piece of Redmond going forward and will ultimately spur growth and margins into FY24,” he summed up.
With all this to come, Ives maintained an Outperform (i.e., Buy) rating and $400 price target, suggesting shares have room for 26% growth in the months ahead. (To watch Ives’ track record, click here)
Of the 34 MSFT reviews submitted during the past 3 months, 30 say Buy, 3 remain on the sidelines while 1 implores to Sell, all adding up to a Strong Buy consensus rating. At $392.41, the average target implies potential upside of 24% for the year ahead. (See Microsoft stock forecast on TipRanks)
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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.
