Microsoft cloud seen as 'steady,' AI monetization around the corner: Wedbush
David Becker
Investment firm Wedbush Securities said on Thursday that its latest checks into Microsoft (NASDAQ:MSFT) show the company's cloud computing unit is "steady" and has seen a "clear uptick" in sequential activity, while the company's ability to monetize artificial intelligence is right around the corner. 
In a note to clients, analyst Dan Ives, who has an outperform rating on Microsoft (MSFT), said the latest checks give him confidence that the company is likely to exceed its growth guidance for Azure of 25% to 26%, aided in part by AI. 
Additionally, the pricing details for its AI tool, known as Copilot, is likely to result in "significant" penetration from customers. 
"We believe while management has talked about a 'gradual ramp' for AI monetization in [fiscal 2024] we believe so far the adoption curve is happening quicker than expected based on our recent checks," Ives wrote in a note to clients. 
Unveiled at its virtual Inspire conference in July, Microsoft (MSFT) said the $30 per user per month cost for Copilot will be for its E3, E5, Business Standard and Business Premium customers. These customers have monthly plans that range between $12.50 and $57 per user per month.
Current E3 users pay roughly $36 per user per month for Office 365, effectively making Copilot an 83% increase for that tier of customers.
Ives added that he believes over the next three years, more than half of Microsoft's (MSFT) user base will be using this AI functionality and that for every roughly $100 of spend on Azure, there is an incremental $35 to $40 being spent on AI.
"Our thesis remains that the cloud and underlying Office 365/Windows ecosystem is going to comprise a bigger and bigger piece of Redmond going forward and will ultimately spur growth and margins into [fiscal 2024]," Ives wrote. 
Microsoft (MSFT) shares were down around 0.5% in pre-market trading on Thursday.

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