(News Bulletin 247) – The IT services juggernaut is currently around $2.6 trillion in market capitalization. But the design offices see the Seattle company exceed 3000 billion.

It’s a club of which only Apple is currently part: companies that weigh more than 3000 billion dollars on the stock market. The Cupertino group passed this bar again at the end of June in terms of market capitalization (that is to say the stock market value of all the shares of a company), after having already briefly crossed it at the start of 2022.

But Apple could soon be joined by the second largest stock market group in the world, namely Microsoft, whose current capitalization is close to 2600 billion dollars. The company headed by Satya Nadella has already had an enviable stock market performance since the beginning of the year. Its share price rose by 46.3%

since January 1, slightly less than Apple (+49.8%), which has been driven by the revival of iPhone sales growth as well as hopes that this momentum will accelerate further with the fall launch of the iPhone 15 range.

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Microsoft for its part was supported by good financial results, in particular in the third quarter of the 2022-2023 financial year (from January to March), thanks to the dynamic (+25% excluding currency effects over the first three months of the year) of its dematerialized computing services (cloud) with its flagship brand Azure. The activity of this segment, just like the valuation of Microsoft, is benefiting from the enthusiasm for generative artificial intelligence (AI), personified by ChatGPT. Microsoft has also invested more than 10 billion dollars in OpenAI, the creator of ChatGPT, integrating its generative AI technologies into its services like Bing, its search engine.

Best placed to benefit from the rise of AI in software

The ascent would not be finished according to the design offices. Morgan Stanley thus at the beginning of the month raised its target price to 415 dollars, which would bring the valuation of the company to just over 3.2 trillion dollars. The US bank believes that Microsoft is still trading at reasonable multiples in terms of expectations for future earnings growth.

“Generative AI appears to dramatically expand the scope of business processes that can be automated by software,” she explained in a note cited by Bloomberg. Gold “Microsoft is best placed in the software sector to monetize this expansion,” considers the establishment.

Wedbush, for his part, clearly says that Microsoft will become the next company to exceed 3 trillion dollars in capitalization. Dan Ives, the research analyst in charge of tech, estimates that the company will pass this milestone in early 2024.

“We estimate that for every $100 of Azure cloud spending with Microsoft, there’s an additional $35-40 of AI spending now on the table, which is a game-changer,” he tweeted in early July. Note in passing that Dan Ives, known for his optimistic forecasts, had also predicted with CNBC that Apple, for its part, would exceed 4 trillion dollars in capitalization by 2025.

Better prospects in the cloud

UBS, on the other hand, revised its judgment last week from “neutral” to “buy” on the stock, with a price target raised from $345 to $400, against $346 at present. This gives the title a potential of nearly 15% and would thus allow Microsoft to display almost a valuation of 3000 billion dollars.

The bank believes that the slowdown in spending on cloud services has bottomed out. It thus wants to be a little more optimized on the growth of Azure, expecting an increase in revenues of 26.9% against 26.5% previously for the quarter from April to the end of June, i.e. the top of the indicative range given by Microsoft (26% -27%).

Above all, the Swiss bank believes that generative AI will further accelerate the company’s activity. “While enthusiasm for AI is already well embedded in the price, we believe it is increasingly difficult to stay away” from the action, writes UBS. Microsoft explained that AI is expected to boost Azure’s growth by one percentage point (or $125 million) in the quarter from April to the end of June. Except that UBS estimates that this boost could prove to be much higher and thus provide a catalyst for action, the establishment estimating at 50% the probability that this magnitude amounts to two percentage points.

Another point justifying the optimization of the bank: the monetization of Microsoft 365 Copilot, a personal assistant launched in March on its Microsoft 365 applications (Word, Excel, Powerpoint, Teams etc.) and which also runs on AI. This monetization was launched this week by the American group at the rate of a subscription of 30 dollars per month. Based on certain assumptions, UBS calculates an additional revenue of over $7 billion to $9 billion by fiscal year 2024-25.

In the meantime, the market will take note of the group’s next financial results, which will be published on July 25, ie Tuesday. Microsoft will then unveil its accounts for the fourth quarter of 2022-2023, that is to say the period from April to the end of June.