Microsoft’s Stock Soars, and AI is the Star of the Show
In a delightful turn of events, Microsoft’s shares reached an all-time high this Thursday, closing at $348.10, thanks to JPMorgan Chase analysts singing praises about the tech giant’s growth prospects in artificial intelligence. What a time to be alive!
Fed’s Interest Rate Decision Fuels the Rally
U.S. indexes experienced a broad rally following the Federal Reserve’s announcement on Wednesday that it would hold off on increasing interest rates. And, as luck would have it, AI has been the talk of the town, especially since Microsoft-backed OpenAI’s ChatGPT chatbot went viral in November.
With tech companies scrambling to incorporate AI into their products and features, and touting its potential for cost savings amid recession worries, Microsoft emerges as a prime beneficiary of ChatGPT and related products.
A Hefty Investment with Exclusive Perks
Microsoft’s investment in OpenAI is nothing short of impressive, and it’s not just for show. The company supplies the underlying computing power, and has an exclusive license on OpenAI’s models, including the GPT-4 large language model that produces human-like responses to text inputs.
Microsoft has already integrated OpenAI tools into its Bing search engine and even the Windows operating system. At a recent event unveiling Bing’s Chatbot, Microsoft CEO Satya Nadella couldn’t contain his excitement, gushing that “it’s an exciting time in tech.”Indeed, Satya, it is!
Show Us the Money
Investors, of course, are eager to see how this all translates to Microsoft’s earnings and revenue. In April, Microsoft finance chief Amy Hood projected fiscal fourth-quarter growth for Azure cloud at 26% to 27% YoY, with AI services contributing 1 percentage point.
Just this Monday, Hood and Microsoft technology chief Kevin Scott engaged in a public tête-à-tête, where Hood boldly declared that “the next-generation AI business will be the fastest-growing $10 billion business in our history.”With nearly $208 billion in total revenue over the past four quarters, Microsoft’s certainly not playing around.
Breaking Down the $10 Billion ARR Prediction
Scott elaborated on Hood’s ambitious forecast, explaining that the $10 billion in annual recurring revenue (ARR) would manifest in various ways, from users training their own models and running open-source models, to making API calls into the frontier models built with OpenAI.
Following the event, JPMorgan analysts raised their price target for Microsoft from $315 to $350, citing longer-term seeds for success in areas like Security, Teams, Power Apps, and the forward-looking OpenAI/ChatGPT investments.
A Tech Comeback Story
Microsoft’s 46% rally this year allowed the stock to recover all its losses from 2022 when investors pivoted away from tech in anticipation of rising interest rates and economic turbulence. Last year’s cloud growth concerns and a shrinking PC market fueled Wall Street pessimism, but the AI excitement and tech companies’ cost-cutting measures have ushered in a renewed bullishness.
With the Nasdaq up 32% this year, doubling the S&P 500’s gains, it’s undeniable that artificial intelligence is the belle of the ball, and Microsoft is leading the dance.
