Microsoft Stock Is a Buy Because AI Agents Can Spur Growth, Says Analyst

Oppenheimer & Co. upgraded shares of the software firm to Outperform from Perform, calling it a “top large-cap idea.” (Dreamstime)

Microsoft got a boost Wednesday in its race to become a $4 trillion company, as a Wall Street firm counseled investors to buy the stock, citing the artificial-intelligence opportunities ahead.

Brian Schwartz of Oppenheimer & Co. upgraded Microsoft stock to Outperform from Perform, and set a price target of $600 in a Wednesday research note. At that price, Microsoft’s market value would breeze past $4 trillion—though the company is still nipping at Nvidia’s heels.

Microsoft stock was rising 1.3% to $503.16 on Wednesday, bringing its market capitalization to around $3.7 trillion. Nvidia became the first U.S. company to reach the $4 trillion milestone in early trading Wednesday, though it dipped back below the figure.

“MSFT shares are our top large-cap idea for playing the AI and Cloud themes, and should be a core holding for long-term investors,” Schwartz wrote.

Oppenheimer’s argument rests primarily on Microsoft’s ability to meet the demand for AI agents among enterprise clients. User satisfaction with Copilot, the company’s current AI assistant, has been underwhelming, Schwartz noted, but its more-customizable solutions are showing strong potential.

Copilot Studio, a management platform that allows organizations to build their own AI agents, is well-positioned to help companies automate workflows and become more efficient, Schwartz argued. And it helps that Microsoft’s M365 productivity suite already has more than 400 million paid users—a dominant position that raises switching costs for organizations seeking AI tools.

“Microsoft has become a business standard for productivity apps,” Schwartz wrote. “This type of lock-in makes it hard to justify alternatives.”

AI demand can also spur growth in Microsoft’s Azure cloud-computing unit, as the company can monetize Copilot Studio activity and client AI solutions hosted on Azure. In its base outlook, Oppenheimer forecasts 29% compounded annual revenue growth for the Azure business over the next five years. That pace would see the unit comprise 64% of the company’s total revenue in 2030.

One of those Azure clients is Microsoft’s longtime partner OpenAI. While the couple have enjoyed a rocky relationship at times, OpenAI gives Microsoft another avenue for AI-related revenue, Cantor Fitzgerald analyst Thomas Blakey wrote in a research note Wednesday.

The companies are in active negotiations over the terms of their partnership, but the ChatGPT maker currently shares 20% of its revenue with Microsoft. Should OpenAI restructure and pursue an initial public offering, Microsoft could take an equity stake in the spun-off company, which would bring its own financial benefits, Blakey wrote.

Under the current deal structure, Blakey projects OpenAI’s shared profits would comprise 14% of Microsoft’s earnings per share in 2030. He thinks that number would jump to 16% if the pair nixed their current arrangement, and Microsoft took a 40% stake in a publicly traded OpenAI.

Either way, the yearslong partnership between the two companies is a boon for Microsoft shareholders, Blakey argued. Oppenheimer maintains an Overweight rating and a $512 price target.

Write to Nate Wolf at nate.wolf@barrons.com