Morgan Stanley
Weiss highlights that the core value proposition of enterprise software is the automation of business processes.
With the rapid pace of innovation in Generative AI technologies, the scope of work where software can drive real productivity gains looks to expand significantly.
While this frantic pace of innovation means a very dynamic marketplace, he notes that several initial trend lines indicate Microsoft stands best positioned in Enterprise Software to benefit from Generative AI, leading him to raise his forward year estimates for Microsoft, assuming minimal penetration of what he estimates can be up to a $90 billion incremental opportunity for the company in FY25.
His GAAP EPS estimates for FY25 move from $13.59 to $13.84.
The price target reflects a forecasted 19% EPS CAGR from FY23-25 at MSFT's 10-year average PEG ratio of ~1.5X supporting a forward P/E multiple of 30X against FY25 EPS at $13.84.
MSFT is his Top Pick in Large Cap software given the strong Generative AI positioning, business models able to quickly reflect demand shifts (notably the consumption model within Azure), and potential for further margin expansion against a reasonable GAAP P/E multiple.
Price Action: MSFT shares traded higher by 1.16% at $342.07 on the last check Thursday.
