Microsoft Corporation (NASDAQ: MSFT) is poised to enter the exclusive group of companies with a market capitalization surpassing $3 trillion, fueled by its artificial intelligence (AI) advancements, according to analysts at Morgan Stanley. They have set a new price target of $415 for Microsoft, implying a valuation of around $3.1 trillion. The analysts, led by Keith Weiss, named Microsoft their top pick among large-cap software firms, highlighting its favorable position to benefit from AI growth.
Weiss asserted that “Generative AI looks to significantly expand the scope of business processes able to be automated by software,” and Microsoft stands as the frontrunner in software companies to monetize this expansion.
The surge in Microsoft’s stock price this year has been fueled by the market frenzy surrounding AI-related advancements. Startup OpenAI Inc., backed by Microsoft, gained significant attention with the viral success of its ChatGPT tool. Capitalizing on this momentum, Microsoft plans to integrate OpenAI technology into its entire lineup of Office apps, including Excel, PowerPoint, Outlook, and Word.
Despite a substantial 41% increase in its share price this year, Weiss considers Microsoft’s valuation to still be reasonable. He noted that the stock’s price-earnings growth (PEG) ratio “remains in line with historical averages, despite its unrivaled generative AI positioning.” The PEG ratio is a metric often used by investors focused on growth prospects.
Weiss has increased his price target from $335 to $415, making it the second-highest projection among analysts tracked by Bloomberg, trailing only Redburn’s target of $450. Morgan Stanley has maintained an overweight rating on Microsoft since early 2016, and the stock has soared by over 500% during that period.
The overall sentiment on Wall Street is overwhelmingly bullish, with 52 analysts rating Microsoft as a buy or equivalent. However, only three of them anticipate Microsoft reaching the historic $3 trillion market capitalization mark by next year, according to Bloomberg data. Apple Inc. (AAPL) achieved this feat last month, becoming the first company to surpass the $3 trillion mark.
Microsoft’s stock dropped 0.86% as of 3:14 p.m. Eastern time.