Wedbush analysts boosted the price target on Microsoft (NASDAQ:MSFT) shares to $375 (from $340 per share) to reflect the “resilient cloud deal flow and the AI monetization opportunity.”
The analysts also reiterated an Outperform rating and the stock’s place on Wedbush’s Best Idea List.
“We strongly believe the first step for MSFT was Azure/Office 365 with the next step ChatGPT/AI monetization on both the consumer and enterprise fronts combined adding $40 to $50 per share to MSFT's sum-of-the parts valuation,” they said in a client note.
“We believe Nvidia's "jaw dropping guidance" heard around the world is a direct AI barometer for Redmond as our recent checks further confirm the monetization opportunity for MSFT is happening much sooner than the Street had anticipated in the field,” analysts added.
Analysts estimate that for every $100 of cloud Azure spend, there is $35-40 of AI spend “now on the table.” They project the AI market opportunity at $800 billion over the next decade.
While Wedbush remains bullish on non-AI segments of Microsoft’s portfolio, analysts argue that ChatGPT “will be the next leg of the growth stool for Microsoft.”
“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 FY23/FY24 despite this downturn. We also believe Redmond is just starting to hit its next gear of growth with ChatGPT and AI also adding a new layer of growth to the MSFT story over the coming years,” analysts concluded.
Microsoft shares are up 1.1% in pre-market Tuesday.