One of the open questions about Microsoft
of
The company’s big push to add generative artificial intelligence applications across its product line is exactly how it monetizes innovation. And there is early evidence that the company plans to take an aggressive approach.
In a research note, Evercore ISI analyst Kirk Matteln said adding AI across Microsoft’s (NYSE:MSFT) portfolio could add $100 billion in revenue by 2027. He said he thinks there is. Matteln has rated the software giant’s stock as an outperformer, pushing the stock higher on Friday. His price target has been raised from $337 to $400 for him, and the price/earnings ratio for him could be 20%.
“We can all agree that today’s ‘hype’ is way ahead of reality, but we believe AI’s impact will eventually reach every industry and geography, and Microsoft is poised to expand its platform over the next few years. uniquely positioned to monetize the transition to AI for “years,” Matern wrote.
He sees Microsoft increasing revenue from AI in three ways.
The first is that the addition of AI-driven “Copilot” software, both in Office and the rest of the company’s productivity and business services business, which includes enterprise applications such as Dynamics and LinkedIn, will generate revenue. He thinks.
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Second, he sees growing demand for cloud computing improving prospects for the company’s cloud business, Azure.
And third, he believes Bing has the potential to gain market share in the search space. (Materne said he was most confident about the impact of the additional co-pilot, but least confident about Bing’s prospects.)
“With such a large potential paradigm shift, it is clear that many assumptions must be made when estimating the impact on demand,” Materne wrote. But he still claims that his “base case” will boost Microsoft’s revenue by more than $50 billion in calendar 2027, while his “bullish case” raises that number to $100 billion.
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Materne adds: “Combining AI-powered monetization with an increased focus on operating costs, even in a challenging macro environment, will result in an upward bias in sales and earnings estimates.”
Microsoft shares rose 0.6% to $334.68 on Friday.
Email Eric J. Savitz (eric.savitz@barrons.com).
