Piper Sandler analyst Brent Bracelin maintains Microsoft Corp
He is confident that MSFT will bring AI to the masses based on bullish commentary from 3P data for April and the Build developer conference in Seattle. He thinks the Microsoft AI opportunity could be more significant than the cloud.
MSFT was a significant $78 billion software business back in FY13 but wholly transformed over the last decade, with FY23E revenue on track to exceed $211 billion.
The Microsoft Cloud segment alone is poised to exceed $110 billion. The incremental revenue, profit, and cash flows generated from Microsoft Cloud have more than offset a lower gross margin that could hit 68.8% in FY23E vs. 73.8% in FY13.
Bracelin saw parallels within AI that could boost revenue and result in a gross margin drag on elevated AI investments.
He increased his revenue estimates by $2 billion and $7 billion for FY24 and FY25 on AI tailwinds but lowered EPS slightly by $0.05 and $0.07, respectively.
Net-net, AI tailwinds could accelerate top-line growth for the next three years. The price target boost reflects higher estimates and a higher target P/E of 31x (vs. 28x) warranted by AI tailwinds.
Credit Suisse analyst Sami Badri maintains Microsoft an Outperform and raises the price target from $350 to $420.
Given MSFT's rapid increase in AI/GPT-based product announcements, Badri updated his AI/GPT uplift base case revenue and EPS on the updated installed base, product penetration, and productization assumptions.
Given Microsoft's progress in the productization of GPT technology, particularly in the Office suite (Microsoft Copilot), he embedded his AI/GPT uplift estimates into the price target valuation.
MSFT's ability to monetize GPT technology within the Office Suite remains the core driver of the analyst's uplift assumptions.
Price Action: MSFT shares traded lower by 0.26% at $330.41 on the last check Wednesday.
