Microsoft is already bigger than Apple, but its 'iPhone moment' could be coming

By Emily Bary

Wedbush is excited about the potential for AI to give a big boost to Microsoft's cloud business

Microsoft Corp. is already the largest public U.S. company, with a nearly $500 billion lead on second-ranked Apple Inc.

But that's not to say Microsoft (MSFT) couldn't stand to benefit from some iPhone-like magic of its own, at least according to Wedbush analyst Daniel Ives, who said late Monday that artificial intelligence could do for Microsoft what the smartphone did for Apple (AAPL) - transform the company's growth trajectory.

Specifically, Ives was referring to Microsoft's revenue growth rate for its Azure cloud business, as well as the company's potential to give its software business a boost thanks to new Copilot AI features. He thinks "'transformative' Copilot monetization" is on the horizon for Microsoft, "and now starting to manifest across many customers and verticals."

Read: Apple's stock has faltered, but a Steve Jobs moment in AI may be on the horizon

He boosted his price target on Microsoft's stock to $500 from $475 in his latest report, with the new target implying 18% upside from Monday's closing level. Ives' growing optimism came after he talked to customers, chief information officers and partners about how Copilot is playing out in the market so far. He came out with the impression that AI could prove Microsoft's "iPhone moment."

"In a nutshell, we see an acceleration of adoption for generative AI and Copilot activity which in turn is catalyzing more Azure cloud deal flow for [Chief Executive Satya Nadella and his team] with major momentum heading into the next six to 12 months as AI use cases explode across the enterprise landscape," Ives said.

In three years, over 70% of Microsoft's installed base will be using Copilot, he said, whereas his prior estimate was for 60% adoption. The company could see AI momentum build this year, though next fiscal year "remains the true inflection year of AI growth" as the company will continue to make pricing moves and roll out use cases in the coming months, according to Ives.

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"We believe the stock still has yet to fully price in what we view as the next wave of cloud and AI growth coming to the Redmond story as AI enterprise use cases catalyze more budget dollars to AI in 2024/2025," Ives continued.

Microsoft's stock is up 12% so far this year, and it's ahead 0.5% in Tuesday's premarket action.

-Emily Bary

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03-26-24 0807ET

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