Microsoft (MSFT) has caught Wall Street off guard with the pricing of its latest AI-related product set to integrate into Microsoft Office, leaving analysts pleasantly surprised.
With a monthly subscription cost of $30, UBS analyst Karl Keirstead acknowledged that the price tag on the M365 Copilot product exceeded even the most optimistic expectations.
“This significant price point surpasses our initial estimates for FY25 Office [revenue] uplift, which we now project to range between $7 to $9 billion,” Keirstead remarked. Previously, UBS had anticipated revenue figures within the $3 to $5 billion range.
Dubbed Copilot, this AI-powered chatbot is Microsoft’s most advanced version yet, boasting an array of impressive functionalities. It can efficiently summarize users’ unread emails, reformat PowerPoint bullets, generate drafts based on provided outlines, and more. Additionally, Microsoft offers other AI offerings, including chatbot integration through Bing and Bing Chat Enterprise, available for free to Microsoft 365 subscribers or at a $5 fee for those outside the network.
Following the product announcement, multiple analysts joined Keirstead in revising their projections upward. In response, Microsoft’s stock surged approximately 4%, reaching an all-time high at the close of the market.
“While M365 Copilot is currently in a limited preview phase, and we have not factored any monetization into our models yet, it is evident that M365 Copilot and forthcoming AI pricing enhancements will serve as incremental drivers for [revenue],” remarked Jefferies equity analyst Brent Thill in a note on Tuesday.
The AI fervor has played a pivotal role in driving Microsoft’s stock price up by nearly 50% this year. In January, the tech giant disclosed a $10 billion investment into OpenAI, the parent company of the popular AI chatbot, ChatGPT. By February, Microsoft teased a “new AI-Powered Microsoft Bing.” The momentum continued, with Bing being named the default search engine for ChatGPT in May, officially challenging Alphabet’s (GOOGL) turf during the first-quarter earnings.
During the company’s earnings call in April, Microsoft Chairman and CEO Satya Nadella affirmed, “Azure has gained traction as customers increasingly opt for our ubiquitous computing fabric from cloud to edge, particularly as every application embraces AI capabilities.” Nadella highlighted Microsoft’s powerful AI infrastructure, which is utilized by their partner, OpenAI, along with Nvidia and other leading AI start-ups such as Adept and Inflection to train large models.
Investors have eagerly embraced this AI hype, which has effectively overshadowed previous concerns about slowing cloud growth. Bank of America Research analyst Brad Sills has raised his price target on Microsoft from $340 to $405, noting that AI has the potential to drive higher revenue throughout the entirety of 2024.
“We maintain our Buy rating and consider Microsoft a top pick, given our perception of the company as a leading AI player in the software industry,” Sills concluded.
