Microsoft stock rose Monday after a Wall Street analyst said the company is best positioned in the software market to convert "AI hype" into "revenue reality."
Jefferies analyst Brent Thill reiterated his buy rating on Microsoft stock and raised his price target to 550 from 465. He called Microsoft the "top AI winner" among software stocks.
On the stock market today, Microsoft stock advanced 0.9% to close at 424.57.
"We believe that Microsoft is the key beneficiary of Gen AI (generative artificial intelligence)," Thill said in a client note Sunday. Microsoft is "poised to benefit from both infrastructure (Azure and OpenAI) and app angles (series of Copilots) opportunities, capturing the most of this transformational opportunity."
Material AI Revenue Later This Year
Even though software companies are unlikely to see material revenue from their generative AI investments until late 2024 and into 2025, investors should start positioning now, Thill said.
In the enterprise AI software market, Thill likes Microsoft and Amazon. In the consumer market, he favors Google parent Alphabet and Facebook parent Meta Platforms. And in the security software market, he prefers CrowdStrike.
"We advocate for investors to position themselves before enterprise adoption ramps in late '24 into '25, providing a better line of sight to revenue uplift," Thill said.
So far, investments related to AI have centered on semiconductor and hardware companies such as Nvidia and Super Micro Computer. But Thill sees a shift coming.
"We believe AI spend will spread to other infrastructure providers and to app vendors that enable enterprises to take advantage of Gen AI," he said.
Elsewhere, BofA Securities analyst Brad Sills maintained his buy rating on Microsoft stock with a price target of 480.
In a client note, Sills said Microsoft's commercial Office sales could grow 20% by the first quarter of fiscal 2026. New subscribers, rising average selling prices and adoption of Copilot AI services will fuel the growth, he said.
Other Microsoft Stock News
In other news Monday, Microsoft has decided to unbundle its Teams communications app from its Office productivity suite globally. Microsoft decided to sell the products separately after facing regulatory pressure, Reuters reported.
The move comes six months after Microsoft separated the products in the European Union to avert a possible EU antitrust fine. Rivals like Salesforce and Zoom Video Communications could benefit from the move, analysts said.
Meanwhile, Microsoft and partner OpenAI are planning a data center project that could cost as much as $100 billion and include a supercomputer, according to a media report.
The companies are planning a U.S.-based supercomputer called Stargate to power OpenAI's artificial intelligence work, The Information reported on Friday, citing multiple anonymous sources.
Microsoft stock is on the IBD Tech Leaders list. Year to date, Microsoft stock is up nearly 13%.
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