Microsoft initiated at Buy, set for growth even if AI disappoints: New Street Research

Microsoft (NASDAQ:MSFT) received a Buy rating from New Street Research as the company initiated coverage for the Magnificent Seven member, noting that even if the AI ​​revolution fails to pan out, the company is well positioned to increase earnings in “Low teens for years to come.”

New Street Research is a London-based investment and research firm focusing on the telecommunications and technology sectors. I set a price target for Microsoft of $570.

“We expect revenue and earnings to increase 5% and 6% above-expected in FY27, grow 16% and 18% annually, respectively, and underpin improvement in valuation multiples,” New Street Research analyst Pierre Ferrago and others said in a comprehensive research note.

As other companies have noted, Microsoft is well positioned for generative AI, in part due to its partnership with OpenAI.

“Microsoft is well positioned, with a strong partnership with the most powerful technology platform, Chat GPT, very well-protected franchises where generative AI can be monetized profitably, and some early signs that Microsoft may be very successful at it,” Virago said. .

Even if artificial intelligence does not appear to be the profit that giant technology companies are betting on, Microsoft will still find itself on solid ground.

“We see limited downside risk, as legacy privileges are well protected against disruption, and if the AI ​​disappoints, one way or another, the underlying privileges remain strong compounding factors,” added Virago.

The company found that Microsoft's wide range of perks, including productivity and business operations, personal computing and gaming, and its cloud services, all tied to subscription plans, laid the foundation for profitable growth.

Microsoft has a Hold rating from Seeking Alpha analysts, but a Strong Buy rating from Wall Street analysts. It has a hold rating from Seeking Alpha's Quant system, which routinely beats the market.