Microsoft (NASDAQ:MSFT) has positioned itself at the forefront of the Generative AI revolution, and there’s no reason to believe that this is about to change any time soon. At least, that is the conclusion reached by Morgan Stanley analyst Keith Weiss following a recent CIO survey undertaken by the banking giant.
The Q3 CIO survey indicates that there will be a stabilization in the growth of IT spending in the short term, with IT spending for 2023 expected to remain at a year-over-year increase of 2.7%. Early indications suggest a “modest acceleration” in growth for 2024, with a projected year-over-year increase of 3.4%, representing a 64 basis point improvement.
The prospect of increased IT spending in 2024 seems to be backed by the growing interest of CIOs in Generative AI and Large Language Models. 66% of CIOs now express that these technologies are having a direct influence on their IT investment priorities. This represents a notable increase compared to 56% in Q2 and 45% in Q1. Additionally, Hyperscalers remain the preferred choice for CIOs when it comes to implementing innovative technologies.
That said, a relatively small percentage, just 11%, anticipate having their initial projects in production this year. The majority of respondents, 43%, anticipate that their projects will get moving next year.
Microsoft, for its part, says Weiss, is well-positioned to benefit. “Overall, Microsoft continues to screen well with favorable alignment to key secular AI themes and 1) Scope to monetize Generative AI across its broad portfolio; 2) Leverage to consumption pricing (via its Azure Cloud business) enabling investors to see any pick-up in demand earlier. Furthermore, Microsoft has exposure to the categories that top the most important CIO priorities (Security, AI/ML, and Cloud Computing) helping Microsoft maintain its position as the #1 share gainer of IT wallet on a 1-year and 3-year view,” Weiss opined.
Adding further sheen, Microsoft’s products remain the dominant force in the corporate world, taking the lead in categories like Collaboration, Email, Knowledge Worker Productivity, and Project Management vendor options.
“All these factors combined with a valuation that is still at a discount to peers” are why Microsoft is Weiss’ Top Pick while he continues to see room for shares to move higher.
As such, Weiss keeps an Overweight (i.e., Buy) rating on MSFT shares to go alongside a $415 price target, suggesting the stock will post gains of ~26% over the coming months. (To watch Weiss’s track record, click here)
How does Weiss’ bullish forecast echo against the word of the Street? Quite positively, it seems, as TipRanks analytics exhibit MSFT as a Strong Buy. Based on 34 analysts polled by TipRanks in the last 3 months, 30 rate MSFT a Buy, while 4 maintain a Hold. At $397.19, the average target makes room for 12-month returns of ~20%. (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.
