Microsoft's (MSFT) partnership with ChatGPT creator OpenAI puts it in the catbird seat to win the artificial intelligence race, a Wall Street analyst said Friday. Microsoft stock dipped slightly.
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The partnership, forged in January 2023, has created the "premier AI platform," Oppenheimer analyst Timothy Horan said in a client note.
"We see this as a positive and sustainable partnership, which gives OpenAI access to the best AI infrastructure, critical data, and funding, and Microsoft exclusivity to the best AI model," he said.
Horan reiterated his outperform rating on Microsoft stock and raised his price target to 500 from 450.
On the stock market today, Microsoft stock declined a fraction to close at 423.85.
"A majority of new AI applications are built on this partnership because of the strength of OpenAI's LLMs (large language models), Microsoft's great enterprise relationships, infrastructure optimized for OpenAI, training data, a complete IT (information technology) bundle, and the AI flywheel of learning from (Microsoft) Copilot usage," Horan said.
Microsoft Stock Up Significantly
Microsoft stock has surged since it announced a major investment and partnership with OpenAI last year. In 2023, Microsoft stock rose 57%. MSFT stock has gained 13% year to date.
"Combined (with OpenAI), Microsoft has unsurpassed network effects, the true barrier to entry of any technology company," Horan said.
With a market cap of $3.16 trillion, Microsoft is the most valuable company traded in the U.S.
OpenAI is likely to release its next-generation large language model, GPT-5, by the end of the year. That should solidify Microsoft's lead, Horan said.
Microsoft will reach $50 billion in generative AI revenue in four years. However, that will require $50 billion of capital expenditures, he said.
"Microsoft will regain a dominant platform role like its PC-era influence in a larger AI-driven market, and expand its multiple," Horan said.
The company's dominance in enterprise AI should benefit its many partners, he said. They include C3.ai (AI), Cloudflare (NET), Nice (NICE), Verint Systems (VRNT) and RingCentral (RNG).
Microsoft stock is on the IBD Long-Term Leaders list.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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