Microsoft's Price Target Raised on Strong AI Prospects

Wedbush analyst Dan Ives recently increased Microsoft Corp.'s price target, citing a bullish outlook for its Copilot chat bot and other artificial intelligence (AI) products. In Ives' opinion, Microsoft's potential in AI is comparable to Apple Inc.'s groundbreaking iPhone, which revolutionized the smartphone market upon its launch in 2007.

Ives believes that AI will significantly impact Microsoft's cloud growth trajectory in the coming years, leading to what he calls the company's "iPhone moment." Despite this bullish view, he notes that the stock has not fully priced in the forthcoming wave of cloud and AI expansion, which could prove highly beneficial due to Microsoft's strong competitive edge in the cloud market compared to Amazon.com Inc. and Alphabet Inc.'s Google unit.

In light of these factors, Ives has raised Microsoft's 12-month target price by $25 to $450 per share and reiterated his outperform rating, designating it as a "best ideas" pick. He cites positive feedback from Microsoft's AI customers and highlights the upcoming monetization of its Copilot product, which is expected to begin in 2024. According to Wedbush estimates, Copilot has the potential to generate $25 billion in revenue for Microsoft by fiscal year 2025.

Ives predicts that over 60% of Microsoft's installed base will adopt AI functionality for enterprise and commercial purposes within the next three years, leading to a significant change in the technological landscape.

Drawing parallels to significant tech milestones in history, Ives compares the prospects of AI to the mainstream adoption of the internet, starting with the introduction of the Netscape browser 28 years ago. He believes that we are currently experiencing a transformative tech spending wave similar to the one seen during the mid-90s with the emergence of the internet.

As of now, Microsoft's stock has shown a 0.2% increase in premarket trading. In 2023, the stock has already risen by 56%, outperforming the Dow Jones Industrial Average, which has experienced a 13.6% increase.

Also read: Tesla's Stock Projected to Reach $1 Trillion Market Value in 2024, Analyst Predicts