MSFT

Microsoft’s (NASDAQ:MSFT) AI Ambitions Make it a Good Pick for the Long Haul

Microsoft (NASDAQ:MSFT) is aggressively pursuing its goal to become a leading player in artificial intelligence (AI). This year, the company made several announcements that confirmed its heightened focus on AI, including a $10 billion investment in OpenAI (the startup behind the AI-powered ChatGPT tool) and the launch of the AI-powered Bing search engine and Edge browser. Based on Microsoft's AI prospects and other strengths, most Wall Street analysts are bullish about its long-term growth.

Microsoft Growth Fueled by AI

Microsoft has a well-diversified business that relies on multiple revenue streams, including the Windows operating system, Office software suite, Xbox gaming console, LinkedIn, and the Azure cloud computing business.

The ongoing macro challenges have impacted several of Microsoft’s businesses, including Azure, which is considered a key growth engine. In the fiscal second quarter, revenue from Azure and other cloud services slowed down to 31% compared to 35% in the fiscal first quarter. The company expects Azure's revenue growth to decelerate further in the fiscal third quarter.

Microsoft is looking beyond these near-term pressures and focusing on capturing AI opportunities. During the fiscal Q2earnings call Microsoft CEO Satya Nadella stated that the company has the most powerful AI supercomputing infrastructure in the cloud, which customers and partners like OpenAI are “using to train state-of-the-art models and services, including ChatGPT.”

Indeed, Microsoft is rapidly advancing in the AI space. This week, the company announced that it is integrating its generative AI technologies from OpenAI into its Microsoft 365 software suite. Microsoft stated that the new AI features, called Copilot, will be available in some of its most popular Microsoft 365 apps like Word, Excel, PowerPoint, Outlook, and Teams.

“Microsoft 365 Copilot’s foundational skills are a game changer for productivity: It can already create, summarize, analyze, collaborate and automate using your specific business content and context,” said Jared Spataro, corporate vice president, Modern Work and Business Applications.

What is MSFT Price Target?  

Last month, Tigress Financial analyst Ivan Feinseth reiterated a Buy rating on Microsoft and maintained his price target of $411.

Feinseth stated, “Ongoing Azure growth and the integration of AI across MSFT’s broad platform of IT services will drive enterprise efficiency and competitiveness and accelerating Business Performance trends.” The analyst believes that while the company may face near-term headwinds, “AI will be the next platform wave for business success.”

Overall, Wall Street has a Strong Buy consensus rating for Microsoft based on 25 Buys, four Holds, and one Sell. The average MSFT stock price target of $292.07 indicates upside potential of 5.8%. Shares have advanced 15% so far in 2023.   

Conclusion

Microsoft is aggressively pursuing its AI dreams, given the massive opportunities in this space. While the ongoing pressures might limit the upside in the stock over the near term, many analysts see strong potential over the long term based on multiple strengths, including the prospects for Azure in the cloud market and the potential in the AI space.

Disclosure

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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