Microsoft’s A.I. ambitions could increase its market cap by $300 billion

The tech giant is “in the driver’s seat” during a pivotal moment for the tech industry, Wedbush analyst Dan Ives wrote in a note to clients on Monday. He cited Microsoft’s partnership with OpenAI creator ChatGPT, which Microsoft is using to power its cloud apps and services, and upcoming releases of A.I.-powered products. 

Based on the positive trajectory, Ives increased his price target for Microsoft’s shares this year to $375 from $340, which would raise the company’s market cap by over $300 billion. In midday trading on Tuesday, the company’s shares were at $331, translating into a market value of around $2.5 trillion.

“ChatGPT will be the next leg of the growth stool” for Microsoft, Ives wrote, adding that the company is “just starting to hit its next gear of growth,” with ChatGPT and other A.I. technology. Microsoft’s stock has already gained nearly 40% this year after a $10 billion investment in OpenAI in January.

Ives pointed to “jaw-dropping guidance” recently announced by chip manufacturer Nvidia as one of the reasons for optimism about tech companies and A.I. Nvidia became the fifth company—after Apple, Microsoft, Alphabet, and Amazon—to reach $1 trillion in market cap on Tuesday. The company’s stock has soared since a first-quarter earnings report last week that showed higher-than-expected revenues.

But it was Nvidia’s forecasted sales of $11 billion in the coming quarter, 50% higher than what analysts had predicted, that really shook markets. The exceptional guidance boosted the company’s valuation by almost $190 billion overnight, while Bank of America analysts called the projected sales the “largest raise” they had ever seen, calling the company a top stock pick on the back of “major data center investments in generative A.I. and large language models.” 

Nvidia CEO Jenson Huang, who is positioning his company to be at the center of the A.I. boom, unveiled a wave of new A.I. products and services over the weekend during a presentation in Taiwan. The announcements included a supercomputing platform that companies can use to create A.I. chatbots similar to ChatGPT.

Nvidia’s massive raise to its guidance shows that companies are ready to spend big on expanding their A.I. capabilities, and those that are fastest to monetize their A.I. products will reap the biggest rewards, Ives wrote.

Microsoft is well-positioned in this respect because of its plans to use ChatGPT in more of its new cloud services, he said. While the company’s A.I.-powered Bing search engine has provided information that is riddled with mistakes since its release earlier this year, he suggested that the bigger source of Microsoft’s revenue growth will be the successful integration of A.I. with its cloud offerings, operated under its cloud computing platform, Azure.

“It has become crystal clear to us that the monetization opportunities around deploying A.I. and ChatGPT in the cloud is a transformational opportunity across the industry,” Ives wrote; and Microsoft is the potential leader. In March, the company began using ChatGPT as a conversational assistant in its cloud apps, and it is being added to Microsoft’s office apps as well, including Word, Excel, and Outlook.

New Microsoft A.I. products that substantially lift revenue will “not be built overnight” as the company tests new features in the coming months, Ives wrote. Still, Microsoft may be ahead of its major competitors in cloud computing, such as Amazon’s Web Services branch. Ives called A.I. the “catalyst” in competition between Azure and AWS over the next 12 to 18 months, and said that Microsoft is currently in “an enviable position” to gain market share in its enterprise business against AWS.