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Investing.com -- DA Davidson named the stock it believes remains the strongest way to invest in artificial intelligence, regardless of whether the sector is in a bubble, in a note Thursday.
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Analyst Gil Luria argued that even under wide-ranging scenarios for OpenAI’s future, “MSFT remains our favorite mega cap pick.”
Luria said the firm analysed “several sources to estimate Microsoft’s OpenAI revenue concentration,” concluding that Microsoft derives “roughly 75% of Azure AI, 17% of total Azure and 6% of total revenue from OpenAI.”
While the exposure is meaningful, DA Davidson stated that the partnership positions Microsoft to remain “the fastest growing hyperscaler in a wide range of scenarios.”
Despite what Luria called being “very, very critical of OpenAI and some of its behavior,” DA Davidson does not believe the developer of ChatGPT is disappearing.
The note highlights that OpenAI “still has one of the best frontier models,” deep technical talent and “~75% share of the AI chat market.”
The most likely outcome, according to the firm, is that OpenAI “scale back its ambitions” and focus on its core lab and ChatGPT, with Microsoft staying “front of the line for spend.”
The analyst also emphasised that Microsoft retained “the more secure portions of OpenAI’s spend,” including all API compute, the “most profitable part of OpenAI’s business.”
This is said to allow Microsoft to upsell data infrastructure and “lift AI margins overall.”
Beyond OpenAI, DA Davidson noted that Microsoft has diversified its AI bets, including investment in Anthropic and internal model development.
With “seven years of free access to OpenAI’s latest models,” the firm believes Microsoft has time to build or partner around future frontier AI.
DA Davidson reiterated a Buy rating and $650 price target on MSFT, saying Microsoft remains “the biggest winner in the AI ramp.”