'AI Top Pick' Microsoft gets a new Street-high target at Credit Suisse

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Credit Suisse analysts reiterated an Outperform rating on Microsoft (NASDAQ:MSFT) shares. The analysts also hiked the price target by 20% to $420 per share, a new Street-high.

Microsoft is an “AI Top Pick” stock at Credit Suisse as ChatGPT/AI is expected to drive revenue growth in the coming years. The bank’s AI/GPT base case now sees Microsoft generating $57 billion in revenue and $2.90 of EPS, a material upgrade relative to the prior forecast of $40B on EPS of $2.00, respectively.

“Given MSFT’s progress in the production of GPT technology, particularly in the Office suite (Microsoft Copilot) we now embed out AI/GPT uplit estimates into our price target valuation,” they said in a client note.

The analysts continue to see Microsoft Office as the key driver of the revenue growth for the Redmond-based tech titan.

Similarly, Piper Sandler analysts also hiked the price target, going to $400 per share from the prior $348. The new price target reflects boosted EPS estimates on AI tailwinds.

“MSFT was a large $78B software business back in F2013 but has been completely transformed over the last decade with F2023E revenue on track to exceed $211B. The Microsoft Cloud segment alone is poised to exceed $110B. The incremental revenue, profit and cash flows generated from Microsoft Cloud have more than offset a lower gross margin that could hit 68.8% in F2023E vs. 73.8% in F2013,” they said in a note.

“AI tailwinds could accelerate top-line growth for the next three years,” the analysts concluded.

Wells Fargo, Deutsche Bank, and UBS analysts also raised their targets on MSFT stock.

Microsoft shares are up 38.1% year-to-date.