Wedbush sees Microsoft joining $3T club in early 2024 powered by AI
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Wedbush Securities believes that Microsoft (NASDAQ:MSFT) is gaining cloud market share with AI monetization on the doorstep.
Wedbush analysts noted that the first step for Microsoft was Azure/Office 365 with the next step ChatGPT/AI monetization on the consumer and enterprise fronts, combined, adding $40 to $50 per share to the tech giant's sum-of-the parts valuation.
The analysts believe that investors are now starting to appreciate that still less than 50% of the workloads have moved to the cloud and Microsoft remains in an enviable position to gain share in its enterprise backyard against Amazon.com's (AMZN) Amazon Web Services (AWS) in the cloud arms race over the next 12 to 18 months with AI front and center as a catalyst.
The analysts' cloud checks in the quarter for Microsoft remain firm as they believe stock gains versus AWS, with more enterprises moving toward this transformational path with Microsoft.
With AI the next step, the analysts think that on a sum-of-the-parts valuation Microsoft should join Apple (AAPL) in the exclusive $3T club by early 2024.
Wedbush has maintained its Outperform rating and $375 price target on MSFT.
The analysts think that Nvidia's (NVDA) 'jaw dropping guidance' is a direct AI indicator for Redmond as their June quarter checks further confirmed that the monetization opportunity for Microsoft is happening sooner than Wall Street had expected in the field.
Monetization opportunities around using AI and ChatGPT â developed by MSFT-backed OpenAI â in the cloud is a transformational chance in the industry with the Redmond, Wash.-based company in the driver's seat, according to the firm.
The analysts estimate that for every $100 of cloud Azure spend with Microsoft the last few years, there is an incremental $35-$40 of AI spend which now is on the table that changes the game and TAM for Microsoft looking ahead.
Wedbush added that cloud and underlying Office 365/Windows ecosystem are going to be a bigger and bigger piece of Microsoft going ahead and will prompt growth and margins into FY23/FY24 despite this downturn.
The analysts also believe MSFT is just starting to hit its next gear of growth with ChatGPT, with AI adding a new layer of growth for the company over the coming years.
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