Microsoft (ticker: MSFT) investors are anxiously awaiting the company’s upcoming earnings announcement. Despite a 0.3% drop in the company’s shares to $330.25 and a 3.6% decline over the past three months, analysts continue to see AI as a potential catalyst for Microsoft’s success.

However, the true potential for Microsoft’s AI investments to generate substantial profits may still be in the future. The launch of the company’s 365 Copilot AI assistant for business customers in early November could be the turning point. As a result, Tuesday’s earnings report might not reflect significant AI earnings. Microsoft has previously projected a revenue growth rate of approximately 25%-26% for its Azure cloud-computing unit in the September quarter, with AI services accounting for two percentage points of that growth.

Despite any short-term setbacks, Microsoft’s focus on AI remains strong, and investors are hopeful for future returns. The upcoming earnings report will provide valuable insights into the company’s progress in this domain.

Introduction

As the software industry continues to provide insights into the gradual progression of AI development, it seems that Microsoft’s AI contribution may not surpass management’s guidance. Brad Reback, an analyst from Stifel, points out that many software companies have expressed a similar sentiment regarding the measured growth of AI in the near future.

Microsoft’s AI Projections

While the expected progress of AI may be tempered, this only serves to highlight the importance of Microsoft’s AI forecast. With the launch of 365 Copilot, Microsoft has priced its service at $30 per user per month. Analysts at Macquarie estimate that if 10% of Microsoft’s existing corporate users sign up, 365 Copilot could generate approximately $14 billion in revenue during its first year.

Evaluating Copilot’s Impact

To gauge the success of 365 Copilot, investors will likely have to wait until the second half of Microsoft’s fiscal year, specifically the March quarter. However, when it does roll out, Stifel’s Reback anticipates that it will contribute to double-digit percentage growth in Microsoft’s Office 365 revenue.

Analyst Rating and Target Price

Considering the promising potential of Microsoft’s AI ventures, Reback maintains a Buy rating on Microsoft stock and sets a target price of $380.

Short-Term Validation for AI Investments

For those unconvinced by the notion of delayed gratification, there may be short-term validation for Microsoft’s AI investments. Bloomberg recently reported that OpenAI, the developer behind ChatGPT, is in talks to sell shares at an impressive valuation of $86 billion. It is worth noting that Microsoft owns a substantial 49% stake in OpenAI, which it acquired for $13 billion. If the shares are indeed sold at this valuation, Microsoft would experience a paper profit of approximately $29 billion.

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