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The Evolution of Microsoft’s GenAI Revolution

The Evolution of Microsoft’s GenAI Revolution

Microsoft Corporation‘s MSFT collaboration with generative artificial intelligence (GenAI) powerhouse OpenAI has been hailed as the pinnacle of the technology realm, akin to a well-matched celebrity couple gracing the red carpet.

Through this alliance, Microsoft is primed to extend its lead over rivals and sustain robust growth both in revenue and profitability for the foreseeable future, as expressed by Stifel analyst Brad Reback.

In Reback’s words, “This marks the first time in over two decades that Microsoft finds itself in the vanguard of an emerging tech frontier, setting the pace rather than playing catch-up.”

He went on to emphasize, “We are confident that Microsoft’s expanding GenAI footprint will emerge as a substantial competitive edge, fueled by a virtuous cycle underpinned by unique Infrastructure & Application-derived insights, guiding its future investments and revenue generation strategies.”

While GenAI development races ahead, few companies have managed to harness its potential at a scale that significantly impacts profits; however, Stifel is adamant that Microsoft leads the charge in a paradigm shift that could reshape the industry.

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Azure Solidifies its Dominance

Reback highlights Microsoft’s Azure platform, which is gaining significant “mind share,” with approximately one-third of the 53,000 organizations utilizing AI services on Azure being newcomers to the ecosystem.

Moreover, Microsoft can leverage customer AI usage data within Azure to drive future investment decisions and fine-tune monetization strategies.

Reback elaborated, stating, “Overall, we foresee Microsoft’s AI infrastructure as a service (IaaS) and platform as a service (PaaS) segment potentially doubling Azure’s total addressable market.”

What does this mean for Microsoft’s bottom line moving forward? Reback noted that while Azure took about three years to reach $1.9 billion in annual revenue, the AI IaaS/PaaS workload is on track to surpass a $7 billion run rate by the year’s end.

Stifel maintained its Buy rating on Microsoft, keeping the target price unchanged at $455. As of the latest market open on Friday, Microsoft’s shares showed a marginal decline of 0.2%, trading at $412.49.

The iShares U.S. Technology ETF IYW, an exchange-traded fund encompassing top tech stocks, with Microsoft holding a 17% share, Apple Inc. at 15%, and Nvidia Corporation at 7%, saw a 0.7% uptick, reaching $143.24.

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