As we head into a New Year, analysts across Wall Street are naming tech giant Microsoft (NASDAQ:MSFT) stock a top pick for 2024. Analysts at Oppenheimer (NYSE:OPY) have named Microsoft their “top large cap pick” for the coming year with a “buy” equivalent rating and a $410 per share price target, which implies nearly 10% upside.
Similarly, Wells Fargo (NYSE:WFC) has named Microsoft its “top software pick” for 2024, and Wedbush Securities has raised its price target on MSFT stock to $425 per share on what it calls game-changing AI monetization. The upgrades reflect that fact that Microsoft remains a best-in-class tech stock to own.
AI Dominance and MSFT Stock
Much of the positive outlook comes from Microsoft’s leading role in artificial intelligence. Having plowed more than $10 billion into leading AI start-up OpenAI, Microsoft is now cascading its generative AI technology across its products, notably its Bing search engine and its cloud-computing services.
However, Microsoft is only now monetizing its AI technology and the company’s dominant role in the space is not fully reflected in its stock price.
Despite gaining 57% in 2023, MSFT stock’s performance has trailed other securities that are also viewed as AI leaders, notably Nvidia (NASDAQ:NVDA), which is up 248% on the year, and C3.ai (NYSE:AI), which has increased 187%.
Analysts such as Dan Ives at Wedbush expect Microsoft’s stock to get a major catalyst as AI is reflected in its finances. In June of this year, MSFT stock hit an all-time high after company executives predicted $10 billion in annual revenue from AI products.
Microsoft was perceived to be a big winner from the recent meltdown at OpenAI that saw CEO Sam Altman temporarily displaced and led to the overhaul of that company’s board of directors.
One change at OpenAI is that Microsoft has been given a non-voting seat on the board of the privately held start-up company. The board seat was a positive development that will strengthen Microsoft’s role with OpenAI, a company that it has put $13 billion into, making it the single largest investor.
The role that Microsoft CEO Satya Nadella played in brokering a resolution to the turmoil at OpenAI also did not go unnoticed, with many observers commenting on the strong influence Microsoft has over the company.
Beyond OpenAI and its technology, Microsoft is taking steps internally to fortify its position in the space. This includes developing its own inhouse microchips to power its AI and cloud-computing models, and creating a data center computer processor unit (CPU) named “Azure Cobalt.”
Completely separate from AI, there are many reasons for investors to be bullish on MSFT stock. The company continues to report exceptionally strong earnings, largely powered by growth in its Azure cloud-computing unit. For this year’s third quarter, Microsoft reported that its Azure cloud-computing business grew 28% year-over-year, well ahead of the company’s forecast for growth of 25%. Microsoft has forecast Q4 growth for the Azure cloud unit of 26% to 27%.
Gaming also remains a bright spot for Microsoft having completed its takeover of video game developer Activision Blizzard in October 2023. The purchase gives Microsoft control of hugely popular video game titles such as the “Call of Duty” and “Guitar Hero” franchises. The acquisition also should strengthen Microsoft’s future titles for its Xbox console. Plus, Microsoft has made clear that it plans to enhance its video game offerings with the application of AI.
Buy MSFT Stock
Heading into 2024, Wall Street is extremely bullish on Microsoft for good reason. The company dominates the AI market, monetizes its products, and has strong growth in cloud-computing and video games.
Even with the big rally in the share price over the past year, Microsoft is expected to continue running higher in 2024. For these reasons, MSFT stock is a buy.
On the date of publication, Joel Baglole held long positions in MSFT and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
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