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Goldman Sachs Forecasts Microsoft Shares to Reach $400 Amid AI Boom

Goldman Sachs joins the bandwagon, predicting a bullish future for Microsoft's shares amidst thriving AI and Copilot initiatives.

Microsoft building
Microsoft building

Goldman Sachs Jumps on the $400 Price-Target Bandwagon for Microsoft

On Friday, Goldman Sachs analysts became the latest to hike the price target of Microsoft (NASDAQ: MSFT) shares to $400, up from $350. This move follows a slew of similar predictions from around a dozen other analysts, implying a 15.3% upside from the stock's current level. This surge coincides with the thriving AI industry and Microsoft's recent announcement of Copilot.

The Potential of Microsoft 365 Copilot: A Game Changer in the Making

The Goldman Sachs team underscored the substantial potential of the forthcoming Microsoft 365 Copilot, set to be launched to an impressive base of over 380 million users. At a monthly fee of $30 per user, they estimate the total addressable market (TAM) to be more than $135 billion in the long term. They believe Microsoft could claim between 15-30% of this market share by FY26, given an expected mid to late FY24 launch. The projected accelerated adoption further amplifies the optimism around this product.

Microsoft Cloud: The Future Powerhouse of Growth

Reiterating their strong conviction in Microsoft Cloud, which encompasses Azure and Office, Goldman Sachs expects sustained growth of more than 20% in the coming years. This growth is anticipated to be driven by businesses increasingly adopting Gen-AI services, thereby amplifying the expansion opportunities in this sphere.

Azure Growth: Outperforming Expectations Amid Deceleration Stabilization

Azure, Microsoft's cloud computing platform, is expected to stabilize following a period of sequential deceleration. Analysts project Azure growth at 27% in constant currency for 4Q23, contributing to total revenue/EPS growth of 8% and 18%, respectively, outpacing the consensus estimates. The demand for new offerings, such as Azure OpenAI Services and GitHub Copilot, could even surpass expectations by approximately 100bps.

Capex Concerns: Investors Eye on High Growth Potential

Investors have expressed concerns about capex intensity potentially surpassing $45 billion next year. However, a more probable estimate ranges between $30-35 billion. Around $2-5 billion of this is expected to be allocated to support Gen-AI services. Despite significant investment requirements, investors may overlook this due to the significant revenue potential these investments could yield, Goldman Sachs analysts conclude.