Microsoft Corp.
The Microsoft Analyst: Ives maintained an Outperform rating on Microsoft shares and raised the price target from $475 to $500. He highlighted that the stock remains on Wedbush's "Best Ideas List." The new price target suggests a potential upside of approximately 19% from current levels.
The Microsoft Thesis: The upward revision of the price target followed recent incrementally bullish AI customer checks with "transformative" Copilot monetization, Ives explained. This development is starting to manifest across various customers and verticals.
"We strongly view this as Microsoft's 'iPhone Moment' with AI set to change the cloud growth trajectory in Redmond the next few years and our recent checks giving further confidence in this dynamic," he said.
Checks with Microsoft customers, chief investment officers, and partners indicate an acceleration in adoption for generative AI and Copilot activity, Ives noted. He anticipates this will catalyze more Azure cloud deal flow, with significant momentum expected over the next six to 12 months as AI use cases proliferate across the enterprise landscape.
Ives also raised his estimate of the percentage of Microsoft's installed base ultimately utilizing Copilot from 60% to 70%.
The Outlook: The analyst believes the stock has yet to fully reflect what is seen as the next wave of cloud and AI growth, as AI enterprise use cases drive additional budget allocation to AI in 2024/2025.
Based on partner checks, he mentioned that Copilot's deployment with Microsoft customers has been consistently strong. This is expected to contribute an additional $25 billion to $30 billion to the company's topline by fiscal 2025.
"Our thesis remains that the cloud and underlying Office 365/Windows ecosystem is going to comprise a bigger piece of the Redmond top-line going forward and will ultimately spur growth and margins into the rest of FY24/FY25," Ives said.
Microsoft closed Monday's session down 1.37% at $422.86, according to Benzinga Pro data. In premarket trading on Tuesday, the stock rose by 0.55% to $425.19.