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The analysis suggests that Microsoft’s current AI copilot portfolio could bring in approximately $9.1 billion in additional revenue. This increase in revenue is expected to come with a high gross margin ranging between 61% and 91%, potentially leading to a $0.49 increase in EPS by the fiscal year 2026 in the base-case scenario.
In an optimistic scenario with higher uptake and user density per machine, the EPS boost could reach as much as $2.17. Conversely, a more conservative estimate, factoring in lower uptake and heavy usage by a smaller group of power users impacting gross margins, predicts a $0.06 increase in EPS.
The approach to assessing the revenue potential involves analyzing the adoption rates of each AI copilot product by the end of the fiscal year 2025. Insights from AI industry leaders indicate that enterprises are likely to spend the 2024 fiscal year evaluating and pilot-testing these applications. This process is expected to lead to significant adoption starting in 2025, once the initial assessments are completed and data on the effectiveness of AI copilots is available.
“In our base case, we estimate that Microsoft could generate ~$7.3bn of incremental ARR from M365 Copilot by the end of FY’25E from the ~20mn users that our 5% uptake rate Implies. We believe this is reasonable as M365 Copilot is available for purchase at a price of $30/user/month by M365 E3 or E5 customers, or by small and mid-sized businesses with M365 Business Standard or Business Premium licenses,” commented the analysts.
