News Microsoft’s AI push has some analysts raving about the stock
Microsoft’s earnings report earlier this week was largely dismissed by analysts as unsatisfactory. But the tech giant’s focus on artificial intelligence (AI) has many on Wall Street remaining optimistic. The company beat analysts’ expectations for earnings per share while missing analysts’ expectations for fiscal second-quarter revenue, Refinitiv data showed. Revenue in the current quarter may also fall short of analysts’ expectations as the PC market continues to shrink, executives said. But Wall Street analysts covering the stock weren’t entirely bullish, pointing to AI as a bright spot in the earnings report. The term AI was mentioned about 40 times on Tuesday’s earnings call, which Wells Fargo analyst Aaron Rakers said was significantly more than in previous calls and highlighted the technology’s importance to the technology company. The importance of the giant’s future development. “The age of artificial intelligence is here, and Microsoft is powering it,” Microsoft Chairman and CEO Satya Nadella said on a conference call. platform. As customers choose their cloud provider and invest in new workloads, we are well-positioned as an AI leader to seize this opportunity.” billion dollar investment. It did not disclose the size of the investment, although Semafor has previously reported that Microsoft is in talks to invest as much as $10 billion. Microsoft previously invested in the company in 2019 and 2021. ChatGPT, which debuted in late November, is a fork of OpenAI’s language generation software. The software enables conversations, with the ability to ask follow-up questions, filter and respond to inappropriate inquiries, and admit mistakes, among other features. Nadella called artificial intelligence “the next big platform wave.” Enterprise business value can be created by “capturing” these waves, he said, meaning the technology can facilitate the improvement of existing products and create new business opportunities for companies. Chief Financial Officer Amy Hood said AI was one area where Microsoft was gaining share despite overall weaker-than-expected domestic performance. “The hottest product in tech” While Bernstein analyst Mark Moerdler called the second-quarter report and third-quarter outlook “disappointing” in a note to clients, he said OpenAI is “the hottest product in tech right now.” product”. In an interview with CNBC, he said Microsoft’s “real” opportunity will come after the current economic contraction and spending starts to pick up. That’s because the value of artificial intelligence will become increasingly apparent, and Microsoft should be positioned to lead a line of AI-enhanced products, he said. “Microsoft’s opportunity lies in the depth and breadth of capabilities,” he said. “The broader the range of things they can do, the deeper and stronger their capabilities in a particular domain, that’s really important because people don’t want to use a lot of different tools from a lot of different vendors.” Analysts and company executives believe AI will Improve existing products such as Azure and Bing. SVB MoffettNathanson analyst Sterling Auty estimates that 76 percent of Microsoft’s total revenue is tied to products that could be improved with OpenAI. In a note to clients, Auty said the partnership should particularly pique the interest of long-term investors. Mizuho analyst Gregg Moskowitz said in a note that artificial intelligence could meaningfully impact Microsoft’s “story” starting later this year. But not everyone on Wall Street is convinced of Microsoft’s position as AI gains traction. JMP analyst Andrew Boone said ChatGPT may improve Bing, but not enough to gain meaningful market share or change the current dynamic in online search engines. Boone also said that Alphabet may have already developed a ChatGPT-like feature for Google, but it has not yet made it public. Meanwhile, Wells Fargo’s Rakers says an “AI wave” could separate the other winners. AI company Nvidia will have a “spin-off focus,” while Arista Networks is well-positioned as the AI fabric expands, he said. — CNBC’s Michael Bloom contributed to this report.