Dan Ives sees big things in Microsoft’s (MSFT) – Get Free Report future.
Back in November, the Wedbush analyst lifted his price target for the software giant to $425 from $400, saying the boost reflected “incrementally positive AI customer checks with ‘game changing’ Co-Pilot monetization now on the doorstep” for Microsoft into 2024.
Ives has been bullish on the company founded by Bill Gates for a while now and he has posted a string of buy ratings over the last year.
And Microsoft has given him plenty of reasons to be so optimistic–roughly three trillion of them–as the company passed the $3 trillion valuation mark on Jan. 24.
The Redmond, Wash.-based company has been doing the market cap mambo with Apple and appeared to be leading the dance at the last check.
Given Ives track record, paying attention to what he thinks could happen to Microsoft’s stock next could pay off.
Microsoft’s shares skyrocketed 900%+ since Satya Nadella took the helm as CEO in 2014, causing his net worth to soar.
Image source: Brad Barket/Getty
Analyst: ‘Grab your popcorn’
Microsoft, which has added nearly $660 billion in value since December 2021 – more than the entire market cap of Tesla – has paced the tech market for much of the past year thanks to its leadership position in AI and its investment in ChatGPT creator OpenAI.
During Microsoft’s earnings call in October, CEO Satya Nadella touted Copilots, telling analysts that with its generative AI chatbot, “we are making the age of AI real for people and businesses everywhere.”
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“We are rapidly infusing AI across every layer of the tech stack and for every role of business process to drive productivity gains for our customers,” he said, according to a transcript of the call.
Microsoft is scheduled to report second-quarter earnings on Jan. 30, and analysts surveyed by FactSet are calling for Microsoft to post earnings of $2.77 per share on revenue of $61.1 billion. A year ago, Microsoft reported $2.32 per share on revenue of $52.7 billion.
To so say that Ives is excited about the upcoming earnings report is putting it mildly.
“We believe Microsoft will be the most important earnings report and conference call (Apple being #2) in all of earnings season regardless of sector as the launch of Copilot success and early adoption of AI will have all the eyes of the Street globally tuned in with popcorn in hand,” he wrote in a note to investors.
Ives told investors that “the two torch bearers of the AI Revolution” are Nvidia (NVDA) – Get Free Report president and CEO Jensen Huang, whom he called “the Godfather of AI,” with Nadella and Redmond “the foundational cloud start for AI use cases around the world now exploding with Microsoft’s earnings Tuesday after the bell a key barometer for the pace of AI spending.”
In 2022, Nvidia announced a multi-year collaboration with Microsoft “to build one of the most powerful AI supercomputers in the world,” powered by Microsoft Azure’s supercomputing infrastructure combined with Nvidia GPUs, networking, and AI software.
Azure growth is ‘most important metric’
“Our checks for Microsoft have been robust this quarter as we believe the AI tidal wave with Redmond in the driver’s seat is accelerating cloud deal flow for Azure with strong momentum into the rest of 2024,” Ives said.
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The company’s flagship Azure cloud computing platform is expected to grow about 27% in the second quarter, but Ives says thinks it could go even higher.
“The most important metric will be Azure growth with the Street’s bogey of 27%, a very beatable number in our view given the level of activity we witnessed during the quarter from core MSFT enterprise customers heading to the cloud,” he said.
Ives, who maintained his $450 price target and outperform rating, said his 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 the rest of FY24/FY25.”
“In a nutshell we view this as Microsoft’s ‘iPhone Moment’ with AI set to change the cloud growth trajectory in Redmond the next few years,” he said.
And Ives is hardly the only analyst singing Microsoft’s praises.
Morgan Stanley analyst Keith Weiss recently raised his price target on Microsoft shares to $450 from $415 a share, noting the company’s generative AI products.
Analysts at TD Cowen also raised their price target for Microsoft to $425 from $390 per share while maintaining an outperform rating on the stock.
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