On Thursday, Bernstein highlighted the forthcoming milestone for Microsoft's artificial intelligence segment, noting that it is on track to exceed a $10 billion revenue run rate exiting the next quarter. With a market capitalization of $3.28 trillion and trading near its 52-week high, Microsoft continues to demonstrate its dominance in the tech sector.
According to InvestingPro analysis, the stock appears slightly overvalued at current levels, though the company maintains a "GREAT" financial health score. Despite investor concerns over Microsoft's guidance indicating a slowdown in Azure growth, the analyst firm emphasized the robustness and potential of the company's AI businesses.
The revenue for Microsoft AI, which encompasses Azure AI and various Copilots, is expected to demonstrate more stability than anticipated and is less reliant on startups training large language models (LLMs). This aligns with Microsoft's impressive 16.44% overall revenue growth and robust 69.35% gross profit margin over the last twelve months. This revenue mix implies that Microsoft AI should maintain strong margins, contributing positively rather than negatively to Microsoft's overall margins.
Bernstein broke down Microsoft AI's revenue into two primary components: the Software (ETR:SOWGn) as a Service (SaaS) Copilots, excluding GitHub Copilot which falls under Azure, and Azure AI itself. Azure AI's revenue is largely driven by enterprise inferencing, including partnerships with entities like OpenAI, as well as GitHub Copilot.
In light of the detailed revenue composition and the potential for healthy margins, Bernstein has adopted a more constructive view on Microsoft's stock performance. The firm believes that investor sentiment will shift favorably towards Microsoft within the year, suggesting that the tech giant's shares are a must-own.
Bernstein reaffirmed an Outperform rating on Microsoft shares, maintaining a price target of $511.00. The firm's analysis points to a positive outlook for Microsoft's AI ventures, even as the company continues to ramp up its capital expenditures. Microsoft's stock is listed on the NASDAQ under the ticker MSFT.
In other recent news, Microsoft Corporation (NASDAQ:MSFT) reported a 16% year-on-year increase in Q1 FY2025 revenue, reaching $65.6 billion. The company's cloud unit, Microsoft Cloud, also reported robust performance, with revenues surpassing $38.9 billion, marking a 22% increase from the previous year.
Microsoft has adjusted its financial segments, recasting its fiscal reports to reflect changes in its operating structure. These are recent developments for the company.
Analyst firms such as TD (TSX:TD) Cowen, Citi, Mizuho (NYSE:MFG), and Goldman Sachs (NYSE:GS) have maintained their positive ratings on Microsoft's stock, reflecting confidence in the company's growth potential, particularly in the realm of AI technology. Piper Sandler's 2025 CIO Survey revealed a strong outlook for IT spending, with Microsoft expected to benefit from heightened Azure spending.
In the healthcare sector, Tevogen Bio has partnered with Microsoft to expedite the target identification process for their oncology product, TVGN 920, using AI and cloud technologies. In corporate developments, Asterion Industrial Partners, in collaboration with Telefonica (NYSE:TEF), sold Nabiax, a Spanish data center operator, to Aermont Capital.
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