ChatGPT is worth at least $20 per share to Microsoft as it ramps up its monetization efforts of the AI chatbot, Wedbush says

• Microsoft is poised to benefit from the growing adoption of OpenAI's ChatGPT, according to Wedbush.
• Wedbush analyst Dan Ives said Microsoft's exposure to the AI chatbot is worth at least $20 per share.
• Ives raised his Microsoft price target to $315 on its AI exposure and the strength of its Azure cloud business.

Microsoft is poised to benefit from the growing adoption of OpenAI's ChatGPT after it made a $10 billion investment in the company earlier this year, according to a recent note from Wedbush analyst Dan Ives.

Ives said ChatGPT will add "a new layer of growth to the Microsoft story over the coming years" as the tech-giant integrates the AI chatbot into its Azure cloud and Office 365 offerings. Microsoft recently integrated ChatGPT into its Bing search engine as it seeks to take market share away from Google.

The early monetization of ChatGPT across both consumer and enterprise formats is worth at least $20 per share to Microsoft in a sum-of-the-parts valuation, according to Ives.

He boosted his Microsoft price target to $315 from $290, representing potential upside of 12% from current levels. Ives rates Microsoft at "Overweight" and the stock remains on Wedbush's Best Ideas List.

Microsoft CEO Satya Nadella "is on the offensive strategically at a time when many other tech players are playing defensive mode, which is a positive dynamic for the long term cloud/AI growth of the Microsoft story," Ives said, adding that the company is becoming "the clear leader" in the AI arms race.

Aside from the growing success of ChatGPT, Microsoft is likely to see resilient growth in its Azure cloud platform, according to Ives, who cited internal checks with customers.

"Azure growth stable and most deals green lighted. Our recent checks in the field have been positive around overall cloud deal flow and momentum for Redmond in the March quarter despite Street fears with our analysis that Nadella and Co. should be able to at least hit the low 30% Azure growth bogey for the quarter," he said.

He explained that the first quarter is showing much better strength than the fourth quarter, in which tech companies were slashing their budgets and looking for cost savings anywhere and everywhere.

"While the environment remains somewhat cautious given the uncertain macro, we are seeing slippage/downsizing on less than 10% of the larger Azure deals we are tracking in the field which is an improvement from deal closure rates we picked up in the very shaky months of December/January when IT budgets were a moving target," Ives said.

Microsoft is also set to benefit from growing cloud contracts with the US government amid "a surge of Beltway cloud deal activity in 2023 with a major shift to cloud underway from the Pentagon to civil agencies in the 202 area code," he said.