Goldman Sachs analysts have expressed optimism about Microsoft’s (NASDAQ: MSFT) Azure AI Services, projecting it as the primary driver for generative AI in the near term and estimating a $200 billion revenue potential within the next five years. The analysts assigned a Buy rating to Microsoft’s stock and set a $450 price target, emphasizing Microsoft’s leadership in Gen-AI services.
In their note on Tuesday, the analysts highlighted that Microsoft’s Azure AI Services are poised for significant growth, supporting their positive outlook for the company’s financial performance. They expect Microsoft to perform well in the second quarter of 2024, anticipating a 17% revenue growth and Azure growth of 28%/27% (in USD/CC). The projected earnings per share (EPS) for this period are $2.85. The analysts believe that AI services will play a crucial role in driving Azure growth, potentially contributing at least 300 basis points in growth during the fiscal year 2024.
They anticipate AI services to remain Microsoft’s primary source of AI monetization over the next twelve months. Goldman Sachs also expressed confidence in Microsoft 365 Copilot gaining substantial traction by the year 2025. Additionally, they maintain a positive outlook on Copilot’s extended growth prospects within Microsoft’s vast enterprise Office365 user base, which currently stands at 380 million.
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Furthermore, the analysts noted a positive overall business environment, expecting a more robust backdrop that could lead to broader revenue acceleration and positive earnings revisions. They believe this favorable environment could support Microsoft’s existing valuation.
In conclusion, the analysts at Goldman Sachs are increasingly confident in Azure’s growth potential, driven by the strengthening Gen-AI cycle. They anticipate Azure evolving into a $200 billion business by the fiscal year 2029, a year earlier than their previous expectations. This optimistic projection underscores their positive stance on Microsoft’s strategic position and growth prospects in the AI services market.