Is Microsoft's AI Initiative Behind the Market Surge, or Is the 2025 Valuation Becoming Overextended?

DA Davidson analyst Gil Luria keeps a Buy rating and $650 price target on Microsoft, noting that the company will stay front of the line for OpenAI spend, which will keep it as the fastest growing hyperscaler in a wide range of scenarios. OpenAI still has one of the best frontier models, some of the deepest talent, and ChatGPT still has about 75% share of the AI chat market, and while OpenAI's over-committing, inflating expectations, and asking for federal government guarantees has caused a backlash across the AI trade, its valuable assets are still there, the analyst tells investors in a research note.

Jefferies tells investors in a research note that Microsoft pushed back on this morning's report from The Information, stressing that key metrics tell a very different story, including a 14-point acceleration in RPO growth to 51% year over year and ongoing capacity constraints driven by demand exceeding supply. Company commentary and industry checks point to strong, sustained Copilot adoption, the firm says. Jefferies, which says The Information "completely missed the point," has a Buy rating and $490 price target on Microsoft shares.

Catch up on the top artificial intelligence news and commentary by Wall Street analysts on publicly traded companies in the space with this daily recap compiled by The Fly:AI SOFTWARE GROWTH TARGETS:Multiple Microsoftdivisions have adjusted lower their targets for how much sales personnel are expected to grow their sales of certain AI products after many of them missed the company's growth goals in the fiscal year that ended in June, The Information. Less than a fifth of the company's Azure sales unit met their Foundry sales-growth targets, and in July, Microsoft lowered their targets to about 25% growth for the current fiscal year relative to the last one, the report states.Jefferies tells investors in a research note that Microsoft pushed back on this morning's report from The Information, stressing that key metrics tell a very different story, including a 14-point acceleration in RPO growth to 51% year over year and ongoing capacity constraints driven by demand exceeding supply. Company commentary and industry checks point to strong, sustained Copilot adoption, the firm says. Jefferies, which says The Information "completely missed the point," has a Buy rating and $490 price target on Microsoft shares.IPO:Anthropic has tapped a law firm to begin work on its IPO, which could come as soon as 2026, and has held preliminary talks with big investment banks about an offering, The Financial Times' George Hammond. According to two people with knowledge of the situation, the start-up's discussions are preliminary and informal, suggesting that the company is not close to picking its IPO underwriters. In November, Anthropic announced strategic partnerships with Nvidiaand Microsoft, and said Amazonremains its primary cloud provider and training partner.AI SUPER-CYCLE:Wells Fargo initiated coverage of Oraclewith an Overweight rating and $280 price target. The firm believes Oracle will emerge as the leader in the artificial intelligence "super-cycle." The company has booked nearly half a trillion dollars of AI deals and is in the "pole position" with key accounts like OpenAI, xAI, Metaand TikTok, Wells tells investors in a research note. The firm points out the stock is down 42% from its highs.

Morgan Stanley analyst Keith Weiss reiterated an Overweight rating and $650 price target on Microsoft after the company announced an expanded partnership with Anthropic. The firm said the announcement aligns with its view that the Microsoft story is broader than just generative AI, and the genAI story is broader than just OpenAI. Microsoft has strong positioning across multiple secular growth drivers, including genAI, migration of Enterprise workloads to the Public Cloud, cybersecurity, and across all these an ongoing push towards consolidation of spend with fewer vendors, the analyst tells investors in a research note. The firm added that the durability of topline demand and potential for further margin expansion displayed in Microsoft's recent Q1 print remain well underpriced.