Analysts at Goldman Sachs said in a note Tuesday that Microsoft's (NASDAQ:MSFT) Azure AI Services will likely be the main generative AI driver in the near term, with a $200 billion revenue potential in five years.
They have a Buy rating and a $450 price target on the stock, stating that their conversations continue to pinpoint Microsoft as the clear market leader in Gen-AI services.
"Consistent with findings based on CEO conversations on the GS Software Bus Tour suggesting stable enterprise spending, we expect MSFT to execute well against our F2Q24 expectations for +17% revenue growth, 28%/27% Azure growth (in USD/CC), and EPS of $2.85," they explained.
"We could see upside to our view that AI services can drive at least 300bps of Azure growth in FY24, remaining Microsoft's main source of AI monetization over the next twelve months," they added.
The investment bank expects Microsoft 365 Copilot to see "tangible traction" in CY25, while they also remain bullish on the long runway for Copilot within Microsoft's 380mn enterprise Office365 base.
"Further, we see a healthier backdrop giving way to broader revenue re-acceleration and earnings revision, which could support Microsoft's current valuation," they continued.
"Augmented by the strengthening Gen-AI cycle, we gain confidence that Azure can grow to a $200bn business by FY29 - a year earlier than previously expected," they concluded.