TLDR
- Oppenheimer upgraded Microsoft stock to Outperform from Perform with a $600 price target, making it their top large-cap AI play
- Microsoft’s market cap sits at $3.7 trillion as it races toward the $4 trillion milestone alongside Nvidia
- AI agent demand through Copilot Studio is expected to drive enterprise growth and workflow automation
- Azure cloud unit projected for 29% annual revenue growth over five years, reaching 64% of total revenue by 2030
- OpenAI partnership could contribute 14-16% of Microsoft’s earnings per share by 2030 depending on deal structure
Microsoft received a vote of confidence from Wall Street on Wednesday as analysts bet on the company’s artificial intelligence strategy paying off big time.
Oppenheimer upgraded Microsoft stock to Outperform from Perform. The firm set a $600 price target that would push the tech giant’s market value past $4 trillion.
Microsoft stock climbed 1.3% to $503.16 on Wednesday. The company’s market capitalization now sits around $3.7 trillion.
The upgrade comes as Microsoft and Nvidia battle for the title of world’s most valuable company. Nvidia briefly hit the $4 trillion mark in early trading Wednesday before slipping back below that level.
Brian Schwartz at Oppenheimer called Microsoft shares the firm’s “top large-cap idea” for AI and cloud investing. He believes the stock should be a core holding for long-term investors.
AI Agents Drive the Bull Case
The upgrade centers on Microsoft’s ability to meet growing demand for AI agents among business customers. Current user satisfaction with Copilot has been lackluster, but more customizable solutions show promise.
Copilot Studio stands out as a key growth driver. The management platform lets organizations build their own AI agents to automate workflows and boost efficiency.
Microsoft’s dominant position in productivity software gives it a major advantage. The company’s M365 suite has over 400 million paid users.
“Microsoft has become a business standard for productivity apps,” Schwartz wrote. “This type of lock-in makes it hard to justify alternatives.”
The analyst sees this installed base as a launching pad for AI adoption. Companies already using Microsoft’s tools face high switching costs when looking for AI solutions.
Azure Cloud Unit Poised for Growth
AI demand should also boost Microsoft’s Azure cloud computing business. The company can monetize Copilot Studio activity and client AI solutions hosted on Azure.
Oppenheimer forecasts 29% compounded annual revenue growth for Azure over the next five years. At that pace, the cloud unit would make up 64% of Microsoft’s total revenue by 2030.
Azure currently hosts solutions for Microsoft’s longtime partner OpenAI. The relationship has had its ups and downs, but it provides another revenue stream.
Cantor Fitzgerald analyst Thomas Blakey highlighted the financial benefits of the OpenAI partnership. The ChatGPT maker currently shares 20% of its revenue with Microsoft.
The two companies are negotiating new partnership terms. If OpenAI goes public, Microsoft could take an equity stake in the spun-off company.
Under current terms, Blakey projects OpenAI’s shared profits would comprise 14% of Microsoft’s earnings per share in 2030. A restructured deal with a 40% Microsoft stake could push that to 16%.
Microsoft has been revising its roadmap for internally developed AI server chips. The company is opting for less ambitious designs through 2028 to address development delays and stay competitive with Nvidia’s AI chips.
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