- Microsoft's "game changing" AI products are seeing solid traction with its Azure customers, according to Wedbush.
- Wedbush increased its Microsoft price target to $425 a share, representing potential upside of 15%.
- "We estimate for every $100 of cloud Azure spend with Microsoft the last few years there is an incremental $35 to $40 of AI spend," Wedbush said.
Microsoft's suite of "game changing" artificial intelligence products are starting to see solid traction with its Azure customers, according to Wedbush analyst Dan Ives.
Ives said it has seen "incrementally positive" signs for AI demand after it conducted channel checks among Microsoft's customers, adding that 2024 will represent a banner year for the roll-out of Microsoft's Co-Pilot offerings.
"Based on our work in the field we believe over the next three years over 50% of its Microsoft installed base will ultimately be on this AI functionality for the enterprise / commercial which changes the landscape for Nadella and Company going forward," Ives said.
This led Ives to believe that there is still plenty of upside for Microsoft's stock, with Ives increasing his price target to $425 from $400, representing potential upside of 15% from current levels. Ives also reiterated his "Outperform" rating for Microsoft and said that the stock remains on the Wedbush Best Ideas List heading into 2024.
"We believe the stock has yet to price in what we view as the next wave of cloud and AI growth coming to the Redmond story with FY24 with a strong competitive cloud edge vs. Amazon and Google," Ives said.
Ives estimates that Microsoft's suite of AI products could add about $20 billion in annual revenue by the company's fiscal year 2025.
"We estimate for every $100 of cloud Azure spend with MSFT the last few years there is an incremental $35-$40 of AI spend for Nadella & Company looking ahead," Ives said. "It has become crystal clear to us that the monetization opportunities around deploying AI and ChatGPT in the cloud is a transformational opportunity across the industry with Redmond in the drivers seat."
The potential for sustainable AI-driven growth in the coming years informs Ives' view that this is a "1995 moment" for the tech sector as a transformational $1 trillion wave of spending not seen since the start of the internet in the mid-1990s gets underway.