Morgan Stanley raised its Microsoft stock outlook to the highest on Wall Street, implying the company once famous for Windows software will climb above a market value of $3 trillion because of artificial intelligence. The generative AI boom has already helped propel Microsoft’s stock by almost 41% year to date — and Morgan Stanley’s new price target implies it will climb another 23% over the next 12 months. “Generative AI looks to significantly expand the scope of business processes able to be automated by software, and Microsoft stands best positioned in software to monetize that expansion, which accompanied with a still reasonable valuation makes MSFT our Top Pick in Large Cap Software,” analyst Keith Weiss wrote in a Thursday note. Weiss raised his price target on Microsoft by 24%, to $415 from $335. According to FactSet, three other Wall Street firms shared the prior Street high target of $400. Morgan Stanley called Microsoft its top pick among large-cap software stocks on account of the company’s strong positioning in the generative AI boom. MSFT YTD mountain Microsoft stock Weiss said Microsoft has taken a “leading position” providing the “picks and shovels” of the AI boom — large language models, data management and other technologies. Microsoft has also shown strengths as one of the field’s “gold miners,” tapping into its access to generative AI-optimized processes and yielding productivity gains. “Impressively, Microsoft has taken leading positions on both fronts, with Azure OpenAI Services representing a compelling platform for companies looking to build (the Picks & Shovels) and a broader portfolio of Generative AI-based application functionality in the market or in preview, like Github Copilot,” Weiss said. Azure is Microsoft’s cloud-computing platform. To be sure, Weiss noted that difficulties remain in assessing the generative AI impact on Azure due to lack of disclosure from Microsoft regarding the company’s growth drivers, as well as the broader array of revenue streams it encompasses. “In our Azure OpenAI Services framework we estimate the potential for Generative AI to accelerate overall application workload growth, the share of those workloads being built in Cloud environments, Microsoft’s share of those workloads and the potential for growth in the average cost per workload,” said Weiss. He estimates AI will lead to Azure’s overall application workload growing by 14% by 2024, up from 10% in 2022. “Given the strong positioning of Azure OpenAI Services and CIOs preference for hyperscalers as the partner to begin incorporating Generative AI technology, Microsoft likely emerges as an early ‘Picks & Shovels’ beneficiary,” Weiss said. —CNBC’s Michael Bloom contributed to this report.
