Scotiabank sets Microsoft stock target at $470, bullish on AI

Thursday, Scotiabank (TSX:BNS) initiated coverage on Microsoft Corporation (NASDAQ:MSFT) shares, bestowing a Sector Outperform rating and setting a price target of $470. The move reflects the bank’s optimism about Microsoft’s strategic investments in artificial intelligence (AI), which are expected to significantly influence the company’s growth trajectory. According to InvestingPro data, Microsoft, currently trading at $387.82, maintains a strong financial health score of "GOOD," with analysts’ targets ranging from $420 to $650.

Patrick Colville, a Scotiabank analyst, highlighted Microsoft’s big bet on AI, which is integrated into both the application and infrastructure layers of its offerings. He anticipates 2025 to be a pivotal year for the tech giant, as customer investments in AI on Azure and Microsoft 365 Copilot are set to accelerate. Colville’s analysis suggests that Microsoft’s position as a frontrunner in the AI revolution will likely result in sustainable fundamental growth, contributing nearly 60% of the incremental revenue in fiscal year 2027. This optimism is reflected in broader market sentiment, with InvestingPro reporting 19 analysts revising their earnings estimates upward for the upcoming period. Get access to over a dozen more exclusive ProTips and comprehensive analysis with an InvestingPro subscription.

Scotiabank’s research indicates that approximately 60% of companies as of March 2025 are implementing foundational AI models in the public cloud, with expectations for enterprise deployments to surge. IT decision makers are reportedly planning to expand their AI use cases within the year. The partnership between Microsoft and OpenAI, coupled with Microsoft’s established customer relationships, provides Azure with a competitive edge in the AI market.

The analyst also addressed potential concerns about the growth of Microsoft’s traditional public cloud business. He believes that a gradual moderation in growth is the most probable scenario, which would alleviate investor worries about the substitution of one revenue source for another. Microsoft’s stock is poised to benefit from these developments, as the company continues to leverage its expertise and partnerships in the rapidly evolving AI landscape. The company’s robust financial performance, with revenue growth of 15.04% and a market capitalization of $2.88 trillion, supports this outlook. Dive deeper into Microsoft’s valuation metrics and growth potential with a comprehensive Pro Research Report, available exclusively on InvestingPro.

In other recent news, OpenAI’s ambitious $100 billion Stargate project is under construction in Abilene, Texas, aiming to house 400,000 Nvidia (NASDAQ:NVDA) AI chips. The project is expected to be completed by mid-2026, with the first phase operational in the first half of 2025. In another development, OpenAI has introduced Python-powered data analysis capabilities to its ChatGPT models, enhancing their ability to perform complex data analysis tasks. Additionally, OpenAI has submitted a proposal to the U.S. government advocating for lighter regulations to facilitate faster AI advancement, highlighting concerns about AI technology from China.

Meanwhile, the Federal Trade Commission (FTC) is advancing an antitrust investigation into Microsoft, focusing on the company’s AI operations and data centers. The FTC is examining Microsoft’s decision to reduce funding for its own AI projects after partnering with OpenAI. In the digital search landscape, Wells Fargo (NYSE:WFC) reports a significant increase in AI agent usage share, which has grown at the expense of Google (NASDAQ:GOOGL) and Bing. ChatGPT, in particular, has shown strong momentum, contributing to the decline in Google search’s share.

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