Investing in Microsoft (NASDAQ:MSFT)

Bernstein analysts recommend owning Microsoft shares, maintaining an Outperform rating with a price target of $511.

Key Reasons for Optimism

• Growing AI Revenue: Microsoft’s AI revenue is expected to exceed a $10 billion run rate by the end of next quarter.
• Sources of Revenue: Microsoft’s AI consists of two prime components: SaaS-based Copilots (excluding GitHub Copilot) and Azure AI, which generates stable revenue from enterprises, including OpenAI.
• Stable Income: Bernstein notes Microsoft’s AI revenue is largely based on inferencing rather than training spending, providing better stability and margins.

Microsoft 365 Copilot Growth

The Microsoft 365 Copilot has achieved a $1–$1.5 billion annual revenue run rate in just one year since its launch. Although initially smaller than expected, Bernstein predicts steady long-term growth.

Analysts' Outlook

Amid stagnant stock performance, Bernstein expresses renewed optimism, asserting that investor sentiment towards Microsoft will improve within a year:
> "With Microsoft's stock having gone nowhere for months we are getting much more constructive on the setup."

Bernstein's confidence is supported by a solid mix of stable AI revenue streams and healthy margins, making Microsoft a compelling stock to own.