Microsoft Corporation, the software behemoth, is on the path to joining Apple Inc. in the exclusive $3 trillion club, thanks to significant gains driven by artificial intelligence (AI). Morgan Stanley analysts have estimated a valuation of $3.1 trillion for Microsoft, with experts highlighting the company's strong positioning in the AI space. Microsoft's embrace of generative AI and its partnership with OpenAI Inc., a startup backed by the tech giant, have fueled investor enthusiasm and driven share prices higher.
According to Keith Weiss, who leads the team of experts at Morgan Stanley, generative AI has the potential to revolutionize business processes by expanding the scope of automation enabled by software. Microsoft, as the dominant large-cap software company, is ideally positioned to capitalize on this software expansion. The company aims to leverage OpenAI to enhance its suite of products, including Excel, PowerPoint, Outlook, and Word, thereby redefining productivity and the user experience.
Microsoft's shares have experienced a significant surge this year, largely attributed to the AI craze. The popularity of AI-powered ChatGPT, developed by OpenAI, has generated considerable excitement, further bolstering Microsoft's growth prospects. Analysts at Morgan Stanley believe that the company's valuation of $3.1 trillion, based on a $415 price objective, is still reasonable, even after the stock's impressive 42% gain this year.
Weiss points out that despite its unrivaled position in generative AI, Microsoft's price-earnings multiple divided by predicted earnings growth, known as the PEG ratio, remains in line with historical averages. Growth investors often use the PEG ratio to evaluate investment opportunities.
In recognition of Microsoft's strong performance, Weiss has also raised the price target for the company from $335 to $415. Bloomberg analysts also have a positive outlook, with the second-highest target set at $450, trailing only Redburn's estimate. Since Morgan Stanley classified Microsoft as overweight in early 2016, the company's stock has surged nearly 500%, highlighting its impressive growth trajectory. Furthermore, Bloomberg data reveals that among the 52 analysts covering Microsoft, 49 recommend buying the stock, underscoring the market's confidence in its potential.
Apple achieved the distinction of becoming Wall Street's first $3 trillion corporation just last month. With its AI-driven gains and strong market position, Microsoft is now poised to follow suit.
Although only three analysts currently predict that Microsoft will reach its $3 trillion market value by next year, the company's continued growth trajectory and expanding AI initiatives make it an intriguing possibility.
With increasing price targets, positive recommendations from analysts, and a strong track record, Microsoft is steadily advancing towards the coveted $3 trillion valuation, joining Apple at the forefront of the tech industry's elite.