Artificial intelligence will transform Microsoft, revolutionize its Bing search engine and double its Azure cloud revenue, CNBC reports.
Microsoft will experience strong growth as it expands its AI offerings, called Copilot, and attracts more users, according to Bernstein. This will permit Microsoft to “up-sell” customers on ever-sophisticated AI features, which currently affect 42% of the company’s revenues, the investment management firm said in a Tuesday note.
“While it is early to size the economic impact of AI on Microsoft’s business, the green shoots are becoming visible,” wrote analyst Mark Moerdler. “The Copilot name, we believe, implies that these AI-enabled offerings will be more than a valuable assistant—they will be critical to operations going forward, in much the same manner as the copilot is critical to flying a large airplane.”
As Microsoft has invested $13 billion in OpenAI’s ChatGPT artificial intelligence and billions more in enhancing its Bing search engine with AI, its stock (MSFT) has increased 28% this year.
“This deep embedding of AI within most of Microsoft’s offerings is going to give Microsoft a distinct competitive advantage at a time when many competitors are cutting back on spending in response to slowing IT spending,” Moerdler said.
Berstein expects Microsoft could increase its Copilot prices by as much as 66% as its AI becomes more sophisticated and useful.
Profits will be in the double-digits, Bernstein said.
Eventually, Bernstein foresees Microsoft’s Copilot becoming so capable of AI-enhanced search that it will become much more formidable than Bing and competitors’ search engines.
In the near term Microsoft’s investments will pressure its gross margins, but as it improves efficiencies and finds new ways to monetize AI, profits will improve.
In time, Bernstein predicts AI-enhanced cloud revenue at Microsoft to generate $9.5 billion to $21.2 billion annually.
“While it is too early to model the full impact of the transformation on Microsoft’s financials, the revenue opportunities being created are very large and the upside for revenue, earnings and [free cash flow] will be substantial,” Moerdler said.
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