Microsoft (MSFT) -) shares moved higher in Thursday trading, hitting an all-time peak, after the tech giant detailed strategies to work more closely with AI developers and analysts at Wedbush boosted the investment firm's price target.
Microsoft also said it would start producing its own central processing units in an effort to diversity its dependence from AI chip leader Nvidia (NVDA) -). The move is seen as likely to improve long-term profit margins as the software giant seeks to make it easier to build GPT and AI functionality into its product base.
The new chip, called Maia, will run large language models that will ultimately connect to its Copilot product, a service enterprise customers use to improve their software and business efficiency. Its Azure cloud division will continue to use chips made by Nvidia and Advanced Micro Devices (AMD) -).
Microsoft CEO Satya Nadella described the current AI development stage as a 'tipping point' in his keynote address to the Ignite developers' conference yesterday in Redmond, Washington, adding that "we're not just talking about it as technology that's new and interesting ... we’re getting into the details of product-making deployment, safety, real productivity gains, all the real-world issues."
Wedbush analyst Dan Ives, meanwhile, forecast that Microsoft's 2025 fiscal year will provide the "inflection point" for AI growth as more than half its installed base will be using the new technology in some way.
"We believe the stock has yet to price in what we view as the next wave of cloud and AI growth coming to the Redmond story with FY24 with a strong competitive cloud edge vs. Amazon and Google," Ives, who lifted hisprice target on Microsoft by $25 to $425 a share, while maintaining an 'outperform' rating on the stock.
"Our partner checks have been incrementally strong around Co-Pilot interest/deployments with Microsoft customers and ultimately we estimate this could add another $20 billion to Redmond's top-line by FY25," he added. "We also believe Redmond is just starting to hit its next gear of growth with ChatGPT and AI also adding a new layer of growth to the MSFT story over the coming years."
Microsoft shares were last marked 1.76% higher in mid-afternoon trading to change hands at $376.25 each, a move that would extend the stock's 2023 gain to around 55% and value the group at just under $2.8 trillion. The stock traded at an all-time high of $376.04 earlier in the session.
Late last month, Microsoft posted stronger-than-expected fiscal-first-quarter earnings, powered in part by its early moves into AI technologies, including its $10 billion investment in Chat GPT creator Open AI.
Microsoft's flagship cloud offering, Azure, saw a huge increase in customers as the group rolled out AI features. Sales rose 29% from a year earlier, outpacing the 19% gain for its broader Intelligent Cloud division and the 12.7% advance in overall group revenue.
Microsoft said it saw Azure growth rates of between 26% and 27% for the current quarter, with revenue for the Intelligent Cloud division pegged between $25.1 billion and $25.4 billion.
Microsoft's adjusted earnings rose 27% from a year earlier to $2.99 a share, ahead of the Wall Street consensus forecast of $2.65 a share. Net income rose 20% to $20.1 billion.
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