BNP Paribas reiterated its stock rating on Microsoft as “outperform.”
According to Zhitong Finance APP, BNP As the wave of AI applications continues to ripple across global enterprises, the financial institution believes that global cloud software leaders ServiceNow (NOW.US) and SAP (SAP.US) will be among the most “growth resilient” companies in the global software industry, even as hyperscale cloud computing core players such as Microsoft and Google continue to dominate the software market in the field of artificial intelligence applications, according to a recent research report published by PARIBAS. However, the company’s stock outlook will lag far behind cloud giants like Microsoft. BNP Paribas remains bullish on Microsoft (MSFT.US), a leader in AI applications and cloud computing, as it believes the company will be one of the biggest beneficiaries of the wave of AI applications.
“We believe the results of our important January survey of global companies serve as a warning signal for the software industry and reinforce the recent negative market view of some software stocks,” BNP Paribas analyst Stefan Slowinski said in a note to clients.
“In contrast, hyperscale cloud computing companies such as Microsoft, Amazon AWS, and Google Cloud continue to ‘win’ in enterprise surveys and their overall spend scores remain relatively resilient. The growing adoption of AI applications has also significantly increased the demand for public clouds. SAP and ServiceNow stand out due to improved demand,” Slowinski said.
Overall, BNP PARIBAS is more optimistic that the big cloud computing giants (e.g. Microsoft, Amazon, Google) will continue to benefit from the wave of AI applications and the growth trend of public clouds, while adopting a more cautious stance towards typical cloud software companies (e.g. ServiceNow, SAP, Datadog).
ServiceNow and SAP are “resilient” but not equivalent to being “beneficiaries of a high-growth core AI wave.”
As hyperscale cloud computing giants dominate the AI era, BNP Paribas believes that spending on AI applications and public clouds will increasingly lean towards large cloud service providers, favoring Microsoft over traditional cloud software leaders. Businesses are generally taking a more cautious approach to IT spending associated with traditional cloud software companies, according to the latest enterprise research.
BNP Paribas analyst Slowinski reiterated his “outperform” rating on Microsoft (MSFT.US) stock and maintained a $632 price target. However, the analyst significantly lowered his price target for ServiceNow to $120 from his previous bullish target of $186. As of Thursday’s U.S. stock market close, Microsoft’s stock price closed at $451.140, while ServiceNow’s stock price closed at $128.560, highlighting BNP PARIBAS analyst Slowinski’s cautious stance on ServiceNow’s valuation and stock price outlook, in contrast to his optimistic bullish stance on Microsoft.
Additionally, Slowinski expressed surprise at the “sudden deterioration in enterprise adoption” of cloud monitoring and cloud data warehousing companies in the January Enterprise Survey, given that cloud monitoring and cloud data warehousing companies such as Datadog (DDOG.US) and Databricks ranked highly in the same enterprise survey conducted by the agency two quarters earlier.
An enterprise research report cited by BNP PARIBAS notes that Microsoft, Amazon AWS and Google GCP cloud platforms continue to score highly in enterprise software spending surveys as key drivers of AI applications and cloud infrastructure, indicating that enterprise customers are spending more elastically on these platforms and are more optimistic about increasing orders. The report accurately describes ServiceNow and SAP as having relatively strong underlying resiliency and improved demand. However, the company’s forward-looking statements are less growth-oriented than the cloud computing giants, and the significant reduction in ServiceNow’s price target reflects more cautious risk asset pricing, and there are even signs of weakness in some cloud-native/monitoring companies.
The hyperscale cloud computing giant is expected to continue to benefit from the wave of AI and public cloud.
The super cloud computing giant is the most important infrastructure provider for enterprise AI training and inference systems, including Microsoft Azure, Amazon AWS, and Google GCP’s GPU/TPU/AI compute power cluster services. Spending on AI platform resources continues to be a core budget item, regardless of whether companies purchase specific AI application software, according to a BNP Paribas study on corporate spending trends. This allows super cloud computing companies like Microsoft to enjoy more stable returns during the AI investment cycle.
In BNP Paribas’ view, enterprise-level SaaS platforms such as ServiceNow and SAP exhibit customer stickiness and relatively stable revenue growth curves (hence the term “resilient”). However, unlike the underlying AI computing resources, their growth is often highly dependent on a company’s IT budget cycle. Amid macroeconomic and geopolitical uncertainty, IT budgets are likely to be strained. The benefits and future growth trajectory of SaaS platforms depend more on industry adoption cycles than on the “cycle-independent” continuous expansion characteristics inherent in AI infrastructure and cloud computing PaaS platforms.
The three largest cloud computing companies, Amazon, Microsoft, and Google, are collectively focused on building an ecosystem for both B-end and C-end application software developers around generative AI. The goal is to significantly lower the technical barriers for non-IT professionals in any industry to develop AI applications, and provide a robust cloud-based AI computing power platform, specifically cloud-based AI inference computing resources.
MongoDB (MDB.US), a database software development company that provides database platform services on Google Cloud, one of the core participants in the Google AI ecosystem, reported higher-than-expected sales and profits and raised its full-year outlook. This is in line with Google’s recent announcement of increased AI capital spending and strong cloud computing revenue growth, highlighting how major cloud providers such as Google, Microsoft, and Amazon remain in a highly favorable environment for AI infrastructure development and an ecosystem of AI platforms for developers, including AI inference computing needs.
This year has seen a real acceleration in the implementation of generative AI in both the enterprise (B2B: process optimization, development, customer service, analytics) and consumer (B2C: AI search/recommendations/consumer intelligent agents) segments due to advances in the Gemini 3 series (with ongoing ecosystem/application expansion) and Claude’s popularity in “programming/agent-style usage.” Objectively, this has pushed computing demand away from “training” to broader inference and online services, thereby significantly increasing the growth trajectory of the global cloud computing IaaS infrastructure (AI GPU/AI ASIC accelerators, networking, storage, large data engineering) and the comprehensive PaaS AI developer ecosystem.
Microsoft is scheduled to release its second quarter earnings report after the U.S. stock market closes on January 28th. Wall Street analysts generally expect the cloud computing and AI leader to post second-quarter earnings of about $3.92 per share, which could be a 34% increase from a year ago. Total revenue is projected to be approximately $80.28 billion, suggesting the potential for 30% year-over-year growth.
ServiceNow also plans to release earnings after the U.S. stock market closes on January 28th. Wall Street analysts generally expect the company to post earnings of about $0.89 per share and revenue of about $3.53 billion, which could be up 19% from a year ago.
