- Microsoft stock is set to hit $550 on AI monetization opportunities, Wedbush Securities said.
- Client checks revealed growing bullishness towards Microsoft's AI Copilot software.
- The firm's cloud platform Azure is also boosting AI spending, and will keep growing.
Artificial intelligence deal conversions are accelerating, priming shares of Microsoft to reach even higher records, Wedbush Securities said.
The firm lifted its price target for shares of the tech giant from $500 to $550, representing upside potential of 24% from current levels.
Year-to-date, Microsoft is up 17.6%.
Behind the call were increasingly bullish customer checks, Wedbush Securities said, driven by "a tidal wave of Copilot and Azure monetization now on the doorstep for MSFT."
"We believe the stock still has yet to price in what we view as the next wave of cloud and AI growth coming to the Redmond story with a strong competitive cloud edge vs. Amazon especially and Google in cloud bake offs," analyst Dan Ives wrote on Sunday.
Conversations with customers and clients indicated particular strength around Copilot deployment, Microsoft's AI-companion software. According to Ives, it could add another $25 billion to the firm's top-line trajectory in fiscal year 2025.
Meanwhile, continued opportunities to integrate AI into cloud computing are especially impactful on Microsoft, given the company's leg up in the industry. Growth in Azure, Microsoft's cloud platform, has boomed in recent quarters, and could be a bridge into more AI spending, Ives wrote.
"We estimate for every $100 of cloud Azure spend with MSFT the last few years there is an incremental $40 of AI spend for Nadella & Co. looking ahead," he said. "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 the rest of FY24/FY25."
Surging AI investment has been Wedbush's central bull theme for a number of tech mega-caps. By now, Ives has frequently framed this as an "AI Revolution," a spending spree that will uplift stocks such as Google, Amazon, Oracle, IBM, and Palantir.
But in a separate Sunday note, Wedbush cited Nvidia, Apple, and Microsoft as the front-and-center names, any of which could be the first to reach a $4 trillion market cap.
"Nvidia and Microsoft are the first derivatives of the AI Revolution, with the second/third/ fourth derivatives of AI now starting to form in this market which speaks to our 2024/2025 tech bull thesis playing out," Ives wrote.