Microsoft had emerged as one of the companies Wall Street expected to come out on top in the artificial-intelligence monetization race. But that was before the AI trade was engulfed by midterm election worries and the uncertainty over what's taking place at Nvidia and with CEO Jensen Huang.
Wall Street's optimism around Microsoft, however, could come back to life next week, according to two Wall Street firms.
Microsoft holds its "Ignite" conference from Nov. 17 to Nov. 20, and the tech giant is expected to focus on advancements around its cloud platform, Azure, and Copilot, its AI assistant tool.
The conference couldn't be arriving at a better time with Microsoft stock under pressure this week after Anthropic unveiled a spreadsheet tool that could become a direct competitor to Microsoft's Excel.
"We expect the event to reinforce confidence in Microsoft's AI growth narrative," Citi analyst Tyler Radke said in a research note.
Radke, who reiterated his Buy rating on Microsoft along with his $680 price target, said the company's opening keynote should focus on the next phase of enterprise AI adoption with announcements centered around Copilot, AI agents, Azure, security, and AI infrastructure.
"We look for continued evolution of Copilot from an assistant into an enterprise agent platform, alongside enhancements to orchestration, governance, observability, and enterprise controls," Radke said.
Citi wasn't alone in this bullish view of Microsoft's upcoming conference.
"Microsoft is back in favor with investors following another better-than-expected quarter, with accelerating growth and strong operating leverage providing incremental confidence in its ability to monetize the on-going AI investment cycle," Morgan Stanley analyst Adam Wood said in a research note Thursday.
Wood has an Overweight rating on Microsoft with a $650 price target.
"Ignite provides an opportunity to reinforce conviction in the durability and breadth of that growth," Wood added.
This also means that the stakes are quite high for Microsoft. The Morgan Stanley analyst said he'd be be looking for further evidence that Microsoft can improve the economics of serving growing AI demand.
Without being able to demonstrate how it can generate more revenue and gross profit from each dollar of infrastructure investment, Microsoft and its stock could take a hit from AI spending concerns.
But that's unlikely as Microsoft has been one of the companies Wall Street seems comfortable with spending big on AI. That's been based around solid revenue growth primarily from Azure.
Wood doesn't foresee any changes to near-term guidance from the conference but he and others on Wall Street seemed to believe that Microsoft must, at least, reinforce confidence that it can sustain strong earnings growth against continued AI investment.
Comments