On Thursday, Evercore ISI sustained its Outperform rating for Microsoft Corporation (NASDAQ:MSFT), with a steady price target of $475.00. The firm highlighted Microsoft's advancements in monetizing General AI (Gen AI) since the initial launch of "Copilot for the Web" over a year ago.
The updated analysis from Evercore ISI suggests that Gen AI could contribute approximately $82.5 billion in incremental revenue for Microsoft by calendar year 2028, under a base case scenario. This reflects a 24% increase on top of the firm's CY28 revenue estimate for Microsoft, which assumes a 9% compound annual growth rate (CAGR) from 2023 to 2028 for the company's core operations.
The projection also includes an additional $5.10 in earnings per share (EPS), based on a 45% incremental net margin. In a more optimistic bull case scenario, Gen AI is seen as potentially adding $142.8 billion in revenue and $12.07 in incremental EPS. The updated forecast for CY27 indicates an incremental AI revenue of $54.6 billion, which is $4.2 billion higher than the base case forecast previously issued in June 2023.
The firm acknowledges that while there are still uncertainties regarding the full extent of Gen AI's monetization within Microsoft's diverse business sectors, they are confident that AI's influence will span across all industries and geographies. Evercore ISI believes that Microsoft is well-positioned to capitalize on this shift in computing, particularly within the commercial market.
In conclusion, Evercore ISI reiterates that the AI monetization opportunity has had a promising start. The firm's analysis anticipates that General AI will continue to exert an upward influence on Microsoft's revenue and EPS estimates for the foreseeable future.
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