How much higher can Microsoft (MSFT) stock go? Shares of the software and cloud giant recently made a new all-time high and the stock closed at a record $359.49 a week ago. The catalyst was the company’s announcement of Microsoft 365 Copilot, an AI-powered version of its productivity platform.
I asked recently whether Microsoft had already been crowned the winner in the artificial intelligence race. Evidenced by the stock’s strong performance, it appears the market agrees. The enterprise software and cloud giant is scheduled to report fourth quarter fiscal 2023 earnings results after the closing bell Tuesday. The market is seemingly onboard with Microsoft’s early AI leadership position, and there are more gains ahead for Microsoft, according to Mizuho Securities analyst Gregg Moskowitz.
With the company’s multi-year, multi-billion dollar investment in ChatGPT developer OpenAI, Microsoft had made no secret that AI would be a key source of its future growth. Moskowitz boosted his price target on the stock to $420 from $390 following the pricing announcement for Microsoft 365 Copilot, which will be offered for $30 per month for Microsoft 365 customers on different plans. Already ranging from $12.50 per month to $36 per month for each user, Microsoft said the Copilot subscription will be added on top of existing Microsoft 365 plans.
Wall Street analysts applauded the announcement. With some estimating that at $30 per user per month, Copilot could boost Microsoft’s fiscal 2025 revenue by as much as $9 billion. This is assuming 20% of customers sign-up for the voluntary add-on, or $19 billion if 40% of them do. With a gain of 44% over the past six months, while climbing 45% year to date, Microsoft’s AI investments are already being rewarded. Coupled with its fast-growing Azure cloud platform, Microsoft stock remains one to own in 2023 and beyond.
For the quarter that ended June, the Redmond, Wash.-based tech giant is expected to earn $2.55 per share on revenue of $55.47 billion. This compares to the year-ago quarter when earnings were $2.23 per share on $51.87 billion in revenue. For the full year, earnings are projected to rise 5% year over year to $9.67 per share, while full-year revenue of $288.34 billion would mark a year-over-year increase of 6.6%.
The company’s push into artificial intelligence by way of its $10 billion investment in Open AI is the “x-factor” in the market’s renewed optimism. AI is expected to fuel Microsoft’s market share among enterprise customers not only cloud adoption but also in its search capabilities. Morgan Stanley Keith Weiss, who has an Overweight rating on the stock, recently noted that enterprise spending in AI is expected to grow to 9% of current IT spending in three years, up from 3% growth this year.
On Tuesday, the company’s guidance will gauge how confident the management feels about its growth potential. Meanwhile, in the third quarter, the company earned $2.45 per share, topping Wall Street estimates by 21 cents, while revenue of $52.86 billion rose 7% year over year, surpassing the $51.03 billion estimate. Revenue was driven by 16% rise in Intelligent Cloud revenue to $22.1 billion, while revenue from Productivity and Business Processes, which includes Office commercial and consumer products and cloud services, rose 11% year over year to $17.5 billion.
During the quarter, the company highlighted more of its entry into the realm of artificial intelligence technology, with CEO Satya Nadella saying of the company's results showing the beginning of "a new era of computing" where "the world's most advanced AI models are coming together with the world's most universal user interface -- natural language.” From my perspective, until there is a noticeable decline in Microsoft’s performance and execution, the stock should be owned for the next 12 to 18 months.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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