Microsofts NASDAQ:MSFT Stock Growth - Reveals AI Pricing

Microsoft's AI integration into their popular Office suite has ignited a considerable rally in the company's shares, reaching an all-time high after the tech giant revealed the pricing for its new AI subscription service, Microsoft 365 Copilot. The service, which significantly augments the capabilities of widely used applications such as Word, Excel, and Teams, is set to cost an additional $30 per month. This upgrade could inflate the monthly prices for enterprise customers by as much as 83%, generating a potential surge in recurring subscription revenue.

This latest surge in Microsoft's share price of 4%, closing at a record $359.49, reflects an impressive annual growth of approximately 50%. The previous peak for Microsoft's stock was recorded on June 15, when the shares closed at $348.10.

The announcement underscores Microsoft's ongoing efforts to enhance and diversify its Office software suite. By incorporating AI capabilities, the company is making its products increasingly appealing to businesses eager to implement AI into their operational workflows. A key player behind this AI development is OpenAI, the creator of ChatGPT, in which Microsoft has invested billions, thereby significantly contributing to advancements in generative AI.

During Microsoft's Inspire conference, the company provided pricing information regarding its AI technology. The Redmond, Washington-based tech conglomerate will charge enterprise customers a monthly fee of $30 per user for Microsoft 365 Copilot, as stated in a company blog post.

According to Jefferies analyst Brent Thill, the announced pricing was higher than anticipated, signaling Microsoft's confidence in its product and its pricing power. Consequently, Thill reiterated his buy rating on Microsoft stock, setting a price target of $400.

Similarly, Wedbush Securities analyst Daniel Ives described the AI pricing news as a highly anticipated and eye-popping announcement. He noted that the initial pricing details are very bullish for Microsoft's total addressable cloud AI market opportunity. His report projects that over the next three years, more than 50% of Microsoft enterprise customers will adopt its AI functionality. On this basis, Ives rates Microsoft stock as outperform with a price target of $375.

In a parallel development, Microsoft announced the introduction of Bing Chat Enterprise at the Inspire conference. This new AI-enhanced service extends the capabilities of the Bing search engine for internal use by corporations and organizations, providing them with tools for rapid content generation, data analysis, document summarization, and more. Bing Chat Enterprise is currently in preview mode and will be made available to Microsoft 365 enterprise and business customers at no extra cost. However, it will eventually be sold as a standalone product at a price of $5 per user per month.

Regarding the overall market outlook, Fintel reports that Wedbush reiterated its Outperform recommendation for Microsoft (NASDAQ:MSFT) on July 18, 2023. The average one-year price target for Microsoft stands at 350.38 as of July 5, 2023, with forecasts ranging from a low of 234.32 to a high of $420.00. If realized, this would represent an increase of 1.35% from its last reported closing price of 345.73.

Microsoft's institutional ownership has grown by 0.82%, with an additional 57 owners in the last quarter, according to Fintel. The average portfolio weight for all funds dedicated to Microsoft is 3.56%, reflecting a considerable increase of 43.26%. The total shares owned by institutions grew by 1.72% to 6,126,867K shares over the last three months. Microsoft's put/call ratio stands at 0.93, indicating a bullish market sentiment.

As we approach Microsoft's earnings release on July 25, 2023, the company's recent track record of earnings per share (EPS) beats and revenue growth expectations are worth noting. The company’s EPS has been steadily trending upwards, and a similar performance is expected for the coming quarters. Analysts anticipate an average EPS of $2.55 for the current quarter and $2.6 for the next quarter. For the current year, the average EPS forecast stands at $9.65, projected to increase to $10.96 by the next year. These figures have seen a consistent upward revision over the past few months, underscoring the positive sentiment around Microsoft's earnings potential.

Microsoft's revenue projections are equally promising. For the current quarter, the company is expected to report revenue of $55.45 billion, rising to $54.88 billion for the next quarter. The current year's revenue is forecasted to hit $211.22 billion, with expectations of climbing further to $235.18 billion the following year. These projections represent a substantial growth from last year's sales figures and testify to Microsoft's resilience and expanding market presence in the technology sector.
Microsoft's market performance has been impressive, as exemplified by the share activity on the day the AI pricing news broke. The stock's range that day stretched from $342.19 to a remarkable high of $366.78. These figures are a far cry from the 52-week range, which saw a low of $213.43 and that same high of $366.78, demonstrating the stock's substantial progress over the past year. This positive momentum was further supported by a notable trading volume of 64,510,869, significantly higher than the average volume of 27,361,991.

Microsoft's market capitalization stands at a massive $2.673 trillion. The company's Beta (5Y Monthly) value of 0.91 suggests its stock price has been slightly less volatile than the market, which can be an attractive trait for risk-averse investors.

The Price to Earnings Ratio (TTM), a key valuation metric, stands at 38.99, reflective of the high growth expectations investors have for Microsoft. The company's EPS (TTM) of $9.22 provides further evidence of the firm's strong profitability. As for dividends, Microsoft has an ex-dividend date set for August 16, 2023, and currently provides a forward dividend & yield of 2.72 (0.79%), showcasing the company's commitment to returning capital to its shareholders.

Looking into Microsoft's future performance, analysts have set a one-year target estimate of $350.79 for the tech giant's stock. In terms of earnings estimates, the consensus among analysts is an average estimate of $2.55 for the current quarter (Jun 2023), $2.6 for the next quarter (Sep 2023), $9.65 for the current year (2023), and $10.96 for the next year (2024). These figures have been consistent over the past 30 days, indicating a consensus view among analysts.

Turning to revenue projections, the average estimate stands at $55.45 billion for the current quarter (Jun 2023), $54.88 billion for the next quarter (Sep 2023), $211.22 billion for the current year (2023), and a substantial $235.18 billion for the next year (2024). These figures indicate robust sales growth, with the current quarter projected to be 6.90% higher than the same period last year, and next year's sales forecasted to grow by 11.30% from this year.

Reflecting on Microsoft's past performance, the company has a history of meeting or beating EPS estimates, with a surprise percentage ranging from -2.60% to 9.90% over the past four quarters. This trend bodes well for the upcoming earnings release, and if the pattern holds, it is likely that the company could deliver another strong quarter.

In conclusion, Microsoft's stock has been performing exceptionally well, bolstered by the announcement of the AI subscription service and pricing, strong institutional interest, and robust earnings and revenue growth projections. With the company continuing to innovate and invest heavily in high-growth sectors like AI, the outlook for Microsoft remains promising, despite the high expectations already baked into its current valuation.
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