Source: Wall Street News

The unabated popularity of AI hype has brought Microsoft, the big tech giant that first seized the opportunity, to a new peak. So far this year, Microsoft's stock price has risen 44%, the market capitalization has increased nearly 800 billion US dollars, and PE-TTM has exceeded 31 times, far exceeding the market average by 20 times.

However, how much does AI actually help the business, and how quickly can the huge investment be converted into book revenue? How much room is there for imagination in the future? Analysts across Wall Street are closely watching Microsoft's performance.

After the US stock market this Tuesday, Microsoft will release its financial report for the fourth quarter and full year of FY23 (Microsoft's fiscal year is from July 1 of the natural year to June 30 of the following year). The answer will be revealed at that time.

Wall Street analysts are mostly optimistic

The vast majority of Wall Street analysts are optimistic about the tech giant's performance expectations. According to CNBC data, 85% of analysts rated Microsoft as holding, buying, or increasing their holdings.

On the eve of the release of the results, several institutions raised Microsoft's target price. Currently, the average target price is 373 US dollars, which means that Microsoft still has room to rise by about 10%.

Goldman Sachs analyst Kash Rangan raised Microsoft's target price to $400 on Friday. In his opinion,The potential market size of AI-related fields is as high as 135 billion US dollars, and Microsoft is the leader among them, and is expected to occupy 15%-30% of the market share in 2026.

Citibank analyst Tyler Radke also raised Microsoft's target price to $425 last week. In his opinion,Microsoft's Copilot has huge potential. Even with a penetration rate of only 5%, the product can bring incremental revenue of at least 5 billion US dollars to Office 365, which is close to half of the sales revenue of Office 365 to enterprises (9.4 billion US dollars) last quarter.

Nancy Tengler, chief investment officer of Laffer Tengler, told CNBC:

“I don't think this is hype; I think they can monetize it. Almost everyone believes that generative artificial intelligence will be the key for decades to come, and I think Microsoft is far ahead of everyone else.”

Is developing and maintaining AI too expensive? Capital expenditure could rise sharply, or drag down Microsoft's performance

The AI application CoPilot, which is integrated into the Office office suite, has won unanimous praise from industry observers for its magical “magic” such as “generating PPT with one click”.

Many analysts expect that through AI software services, Microsoft can significantly increase its revenue and become a new growth curve.

However, Copilot's pricing of up to $30 per user per month has left many people skeptical about its profitability and appeal to users.

Last Wednesday, Guggenheim analyst John DiFucci called CoPilot's pricing “unexpectedly high” in his report.

Tech investor Paul Meeks also believesMicrosoft's Copilot pricing is too aggressive and may exceed the budget of many average users. He believes that if Microsoft fails to significantly raise revenue guidelines and growth expectations in this earnings report, there may be a decline in stock prices.

Furthermore, the growth of Microsoft's cloud computing business is also one of the key concerns of analysts.

Wolfe Research analyst Alex Zukin pointed out in a recently released report thatAs Microsoft deepens into the AI field, the market's focus will shift from what is good enough to “how good it can be.”

Alex Zukin believes that Microsoft Azure is expected to achieve 27.5% revenue growth this season. He pointed out that Azure is winning the market growth brought about by the AI boom. He anticipated,Azure revenue will accelerate this quarter and the first quarter of FY24. By the end of this year, revenue will increase 30% year over year.

However, the pressure on computing resources brought about by the AI boom also meansIn order to keep up with the new market demand, Microsoft's capital expenditure may rise sharply, dragging down its performance. Microsoft executives also warned during last quarter's earnings call, saying that capital expenditure on AI would increase dramatically in the fourth fiscal quarter.

Microsoft's capital expenditure for FY23 is unanimously expected to be 32 billion US dollars, accounting for 13.5% of estimated revenue, but according to estimates by Jeffrey analyst Brent Thill, Microsoft's capital expenditure may be as high as 35 billion to 40 billion US dollars, accounting for 15% to 17% of estimated revenue.The costs associated with developing, hosting, and servicing Microsoft's AI products are too high. It could drag down its performance.

Editor/jayden