Microsoft's ChatGPT Monetization and Cloud Deals Projected To Drive Upside, Analyst Bumps Up Price Target

Wedbush analyst Daniel Ives maintains Microsoft Corp MSFT with an Outperform rating and raises the price target from $290 to $315.
The analyst's recent checks in the field have been positive around overall cloud deal flow and momentum for Microsoft in the March quarter despite Street fears.
While the environment remains cautious given the uncertain macro, the analyst saw an improvement from deal closure rates picked up in the very shaky months of December and January when IT budgets were a moving target.
The analyst finds that Microsoft remains in an enviable position to gain share in its enterprise backyard against Amazon.Com Inc AMZN AWS in this cloud arms race over the next 12 to 18 months.
He believes 90%+ of Azure and Office 365 large deal activity is still on track through his MSFT partner checks for the June quarter with modest push-outs and downsizing of major cloud projects seen in the field containable thus far.
Though some more significant cloud deals from the financial vertical could get downsized, MSFT and cloud peers are witnessing a surge of Beltway cloud deal activity in 2023, with a substantial shift to cloud underway from the Pentagon to civil agencies in the 202 area code.
The analyst expects the cloud and underlying Office 365 and Windows ecosystem to comprise a more significant piece of Microsoft and spur growth and margins into FY23 and FY24 despite this downturn.
Microsoft is just starting to hit its next growth gear with ChatGPT and AI, adding a new layer of growth to the MSFT story over the coming years.
The first step for MSFT was Azure and Office 365, with the next step ChatGPT and AI monetization on both the consumer and enterprise fronts combined, added to MSFT's sum-of-the-parts valuation as this execution story plays out.
Price Action: MSFT shares traded higher by 1.30% at $286.52 on the last check Wednesday.