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Evercore ISI analyst Kirk Materne says artificial intelligence is going to provide a gigantic boost to Microsoft, which is in a “unique position to monetize the platform shift to AI.”
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One of the unanswered questions about
Microsoft
’s
major push to add generative artificial-intelligence applications across the company’s product line is just how it intends to monetize the innovations. And there is early evidence that the company plans to take an aggressive approach.
Evercore ISI analyst Kirk Materne wrote in a research note that he thinks adding AI across the Microsoft (ticker: MSFT) portfolio could provide $100 billion in incremental revenue by 2027. Materne, who has an Outperform rating on the software giant’s stock, on Friday boosted his target price to $400, from $337, for a potential 20% return on the stock.
“While we can all agree that the ‘hype’ is ahead of the reality today, we believe the impact of AI will ultimately cut across every industry and geography and Microsoft is in a unique position to monetize the platform shift to AI over the next few years,” Materne writes.
He sees Microsoft generating incremental revenue from AI in three ways.
One, he thinks the company will monetize the addition of AI-driven “Copilot” software across both Office and the rest of the company’s Productivity and Business Services business, which includes enterprise applications like Dynamics and LinkedIn.
Two, he sees a boost in demand for cloud computing improving the outlook for Azure, the company’s cloud business.
And three, he sees potential for Bing to gain market share in search. (Materne notes that he has the highest conviction on the impact of adding Copilots, and the least on the outlook for Bing.)
“Clearly, there are a lot of assumptions required when estimating the impact on demand due to a potential paradigm shift of this magnitude,” Materne writes. But he nonetheless contends that his “base case” is a $50 billion-plus revenue boost for Microsoft in calendar 2027—while his “bull case” pushes that number to $100 billion.
Adds Materne: “The combination of AI monetization and an enhanced focus on op-ex will have an upward bias on top and bottom-line estimates—even in a challenging macro backdrop.”
On Friday, Microsoft shares are 0.6% higher at $334.68.
Write to Eric J. Savitz at [email protected]
Source: https://www.barrons.com/articles/microsoft-ai-stock-revenue-75d5bc91?siteid=yhoof2&yptr=yahoo