According to StatCounter, Microsoft’s (NASDAQ:MSFT) Windows is the most popular desktop operating system in the world, which as of July 2023, held almost a 70% share of the market.
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This ubiquitous product is one used across the globe, but Microsoft is about to add another feather to its cap, says Oppenheimer analyst Timothy Horan, and become the “operating system for AI.”
With the Cloud industry still in its early innings, and the overall TAM (total addressable market) and adoption rate getting an AI-shaped boost, Horan lays out the bull case. “We believe Microsoft is best positioned by: 1) taking a neutral operating system model that is supportive of proprietary and open source LLMs and other applications alike; 2) expanding its ecosystem to commercialize advances in AI on top of Azure (i.e., Meta, Databricks, Snowflake, etc.); and 3) leveraging its scale to roll out AI applications like Office 365 Copilot to the masses (1.0B Windows users, 330M Teams users),” The 5-star analyst explained.
More than 600 customers are currently trying out its AI-powered Office Copilot service, with companies noting increased worker productivity and satisfaction. As initially only Microsoft 365 E5 users on high-end plans will have access to the product (release date has not been announced yet), Horan thinks it will be a while before the impact to revenue will be felt. “Positively,” he adds, however, “this should drive up-sell for security, telephony, and other products, as attaching Copilot requires the higher end plans with security bundled.”
Taking of security, Horan also sees the Security market representing a $200 billion opportunity, with Microsoft on track to become a “best-of-suite provider,” taking a 10% share of the spoils whilst growing 40% a year.
The company also has a “sustainable competitive advantage,” given it can use Open AI along with its proprietary in-house and customer data on a “unique infrastructure,” with Horan noting Azure Arc currently stands alone as the sole hybrid and multi-cloud option offered by major cloud providers. Horan is also confident that the integration of AI into Dynamics 365 offers notable benefits.
So, a huge opportunity ahead for Microsoft, but what does it all mean for investors? Horan maintains an Outperform (i.e., Buy) rating for the shares to go alongside a $410 price target. Should the figure be met, a year from now, investors will be pocketing returns of ~27%. (To watch Horan’s track record, click here)
Overall, 35 analysts have chimed in with MSFT reviews over the past 3 months and these breakdown into 32 Buys, 2 Holds and a single Sell, all culminating in a Strong Buy consensus rating. The $391.52 average target makes room for one-year returns of ~22%. (See Microsoft stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
