share of Microsoft (MSFT 2.42%) The market was rallying higher today, reaching gains as high as 2.5% before reverting to 2.2% gains as of 1:28 pm EST.
The software and cloud behemoth received encouraging comments today from Wedbush analyst Dan Ives, who maintained a $290 price target on the stock, while calling a big rumored investment in AI chatbot ChatGPT a “potential game-changer.” Meanwhile, a survey conducted by CIO Dr Morgan Stanley Also shed a positive light on Microsoft’s competitive position with the IT department.
It’s been just over a month since OpenAI’s ChatGPT chatbot was unveiled to the public. But since then, it has taken the tech world by storm. After investing $1 billion in OpenAI in 2019, in recent days, Microsoft has been rumored to strike a much bigger deal with the ChatGPT parent.
According to rumored terms of a possible follow-on investment, Microsoft will invest another $10 billion in OpenAI at a $29 billion valuation. Microsoft will then be entitled to 75% of all profits until it recoups its $10 billion after which its investment will revert to 49% ownership of OpenAI.
Wedbush’s Dan Ives thinks it’s a smart investment and potentially a “game-changer”, as Microsoft could add OpenAI capabilities to its business intelligence software and potentially improve its Bing search engine to rival it. the alphabetIts influence is Google (GOOG 2.78%) (GOOGL 2.81%) search Notably, Microsoft’s Azure cloud platform also benefits from ChatGPT, which uses Azure as its AI processing platform. So while Microsoft’s potential $10 billion investment seems expensive, Microsoft is in a favorable position to recoup that investment not only through ChatGPT’s success, but through its use of the cloud.
Meanwhile, Ives also came up with a note yesterday that recent channel checks on cloud-computing purchases show a “stable” environment that is “better than feared.” After checking Ives’ channel, analysts at Morgan Stanley also called Microsoft “well positioned” to gain market share in a possible IT spending slowdown. In that scenario, analysts say as companies seek to consolidate their IT vendors to streamline and cut costs, Microsoft’s full stack of bundled offerings could enable it to steal market share from competitors. In a recent survey of enterprise chief investment officers, analysts wrote:
“Microsoft leads in expected IT budget gains due to migration to the cloud over the next three years. In fact, Microsoft has extended its lead the amazon (AMZN 5.12%)~48% of CIOs surveyed now expect Microsoft to see the largest incremental IT budget share gains over the next three years on a net basis, compared to second-place Amazon at 15%…Microsoft is well-positioned in core security software, cloud Spending on priority categories like Computing, DW/BI/Analytics, Digital Transformation and AI/ML.”
Morgan Stanley maintained a $307 price target on the stock.
Investors have sold cloud leaders, including Microsoft, at surprising levels over the past year, as high interest rates and cloud-growth rates have slowed in the past year. However, it may not be a good idea to be too bearish on the cloud giants given the long-term growth outlook for the cloud transition, which is in its early to mid-innings.
I didn’t think Microsoft was such a strong and reasonably priced company that it sold nearly 30% over the past year, but it happened.
With multiple wide-gross, high-margin franchises as well as a strong position in the growth of cloud computing, Microsoft should be a key holding in any portfolio, regardless of investor age. Now is as good a time as any to buy this core tech holding.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Billy Duberstein has positions in Alphabet, Amazon.com and Microsoft and has the following options: Short Jan 2023 $80 puts on Alphabet. His clients may own shares in the said company. The Motley Fool has positions on and recommends Alphabet, Amazon.com and Microsoft. Motley Fool has a revealing policy.