In a note to clients Wednesday, HSBC said that Microsoft's (NASDAQ:MSFT) current valuation is attractive due to its strategic focus on monetizing its artificial intelligence (AI) initiatives.
The endorsement comes in light of Microsoft's pivotal partnership with Coca-Cola, where AI adoption has played a role in expanding the collaboration from a $250 million deal in 2020 to a substantial $1.1 billion commitment.
According to HSBC's analysis, the $1.1 billion commitment from Coca-Cola underscores Microsoft's growing prominence in AI technologies and its Azure cloud platform. This partnership extends beyond basic cloud adoption, with Coca-Cola migrating all its applications to Azure and planning joint experiments across various business verticals to unlock economic value.
HSBC maintains a target price of $516 per share and a Buy rating for Microsoft, reflecting a potential upside of approximately 29% from current levels. The firm's positive outlook is grounded in Microsoft's strong revenue growth, margin profile, and strategic positioning within the AI and cloud computing sectors.
"We believe Microsoft deserves a premium multiple vs the sector due to its strength in Azure and AI," HSBC noted, highlighting Microsoft's leadership in harnessing AI to deliver business solutions across diverse industries.
HSBC's endorsement of Microsoft as a core technology sector holding underscores the company's potential to capitalize on AI-driven value creation over the long term. Microsoft shares are trading favorably relative to sector peers based on key valuation metrics, according to HSBC.