Generative AI advancements can help Microsoft bounce back from its recent losses, according to Guggenheim. Analyst John DiFucci upgraded the stock to neutral from sell, saying the “potential monetary benefit from Generative AI is too strong a force to contend with” despite the company’s recent underperformance. The analyst removed his price target on the stock as he believes the stock is trading around a fair valuation. Microsoft has lost steam in recent months, down 6.9% for the quarter after the company reported slowing revenue growth in its Azure cloud and Windows PC businesses in the fiscal fourth quarter. Still, the tech giant is still up more than 32% for the year, boosted by excitement around its investment with ChatGPT-maker OpenAI. Prior to the upgrade, DiFucci was the last analyst with a sell rating on Microsoft, according to FactSet. But Guggenheim isn’t entirely sold by Microsoft’s AI promises. “While we believe that MSFT will be able to monetize GenAI, the massive monetization which appears to be a foregone conclusion for many investors carries material risk in our opinion, in both the size and timing of the benefit,” DiFucci said. DiFucci noted PC shipments, which drive the Windows business, will no longer benefit from “resurging relevance” and were a Covid beneficiary like Zoom. He added that Azure has also struggled due to growing pains in the market and the macroeconomic environment, but that its losses were partially offset by Microsoft’s Office business with its price increases and deal renewals at lower discount prices. Guggenheim expects Office to continue to benefit from these factors, even aside Generative AI, he said. Despite these headwinds, DiFucci said, “we do see this behemoth’s monopoly status as a valuable fulcrum that it can leverage as it has many times in the past.” — CNBC’s Michael Bloom contributed to this report.
