Microsoft (NASDAQ:MSFT) shares slipped fractionally in pre-market trading on Tuesday even as investment firm Loop Capital started coverage on the tech giant with a buy rating.
Analyst Yun Kim, who also put a $425 price target on Microsoft (MSFT), said the company’s growth is likely to accelerate due to its two most strategic businesses, Azure and products based on generative artificial intelligence, namely Microsoft 365 Copilot.
Kim added that Microsoft has positioned itself to benefit from larger companies who want pre-packaged generative AI solutions, as well as independent software vendors who are building out their own generative AI solutions via Azure OpenAI Services.
Kim also said that recent channel checks have shown that companies who were focused on optimizing cloud costs have started to pick back up again, which he believes will be a “tailwind” for Azure in the future.
Regarding the company’s multi-billion dollar investment in OpenAI, Kim said he is more conservative about that due to the current GPU shortage which could limit capacity for generative AI compute resources and continued pressure on IT budgets.
Microsoft is slated to report quarterly results on October 24. A consensus of analysts expect the U.S. tech giant to earn $2.65 per share on $54.52B in revenue.