Microsoft is making significant strides in the field of artificial intelligence (AI). The tech giant recently received an upgrade from Oppenheimer, with analysts highlighting the potential gains from AI that are not yet fully reflected in the company’s valuation. Brian Schwartz, an analyst at Oppenheimer, stated, “Investors’ focus on the ramp-up of Microsoft’s AI revenue stream will only increase as Azure’s growth remains strong.
This not only supports valuation—similar to how AWS supports Amazon’s valuation—but also presents upside potential as this revenue stream scales rapidly, establishing Microsoft as a long-term AI leader in software.”
Microsoft’s strategic partnership with OpenAI, the parent company of ChatGPT, positions the company as a key player in the AI boom. The strength of the AI cycle is expected to drive increased usage of Azure, Microsoft’s cloud computing platform, further solidifying the company’s position as a solid earnings compounder.
Microsoft’s AI-driven growth prospects
However, Schwartz also cautioned about the risks associated with the AI cycle, particularly if enterprise customers start viewing AI investments as primarily focused on software that is not yet fully available. This could impact Azure’s usage and financial outcomes, potentially affecting the multiples Microsoft currently enjoys as a perceived leader in AI. Despite these risks, Microsoft’s stock has seen a substantial 17% increase this year.
The company’s ability to monetize AI, especially within its cloud segments, may be underestimated by investors, according to Schwartz. Oppenheimer’s upgrade underscores the promising yet complex landscape of AI investments, as tech giants like Microsoft navigate the evolving market dynamics. As the AI revolution unfolds, Microsoft’s position as a long-term leader in the field will be closely watched by investors and industry experts alike.
