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Microsoft
shares have rallied 42% so far this year, aided in no small measure by the company’s strong position in the emerging market for generative artificial intelligence software. There’s reason to think the company can tighten its grip on the enterprise software market from here—while taking a commanding lead in the emerging opportunity in enterprise AI.
That’s the view of Oppenheimer analyst Timothy Horan, who on Thursday repeated his Outperform rating on
Microsoft
(ticker: MSFT) shares and lifted his target price on the stock to $410 from $330. His thesis is that the company can leverage its dominant position in Windows and Office with cloud and AI computing software to drive substantial further growth.
Horan says in a research note that Microsoft is likely to further “improve its already dominant enterprise IT position.” While the company is well known for its Windows PC operating system, the analyst contends Microsoft now has three key parts: Not just Windows, but also the business communications platform Teams, as well as the Azure cloud business and its emerging set of AI tools.
“AI is the key to the transformation as one vertically integrated supplier can optimize the infrastructure and better integrate the applications,” Horan writes.
Horan notes that Microsoft’s strong position reflects its “ubiquitous productivity apps” such as Word, Excel, and Powerpoint—and over 1 billion Windows users. He says the percentage of users relying on cloud-based versions of those products should double to 80% over the next seven years, with accompanying higher revenue per user.
“Microsoft’s applications will work seamlessly together, with major network effects,” Horan writes. “It will have the full suite of services to attack every segment of compute, networking, security, and services, both on its own platforms and via best-in-class partnerships through its marketplace.”
Horan notes that Microsoft,
Amazon.com
(AMZN) and Google parent
Alphabet
(GOOGL) continue to dominate cloud computing outside China—and he asserts that the market is “becoming increasingly concentrated.” The analyst thinks Microsoft’s strong position with enterprise costumes makes it “especially well-positioned.” And Horan adds with its partnership with OpenAI, Microsoft is “structurally advantaged” for the AI computing wave.
Microsoft shares were up 1.1% on Wednesday afternoon, while the
S&P 500
was up 0.7%.
Write to Eric J. Savitz at [email protected]