Need an example of Wall Street’s pivot from artificial-intelligence exuberance to caution? Look no further than Microsoft Corp.
“What a difference a quarter makes,” Wolfe Research analyst Alex Zukin wrote in a note to clients Wednesday. “While last quarter we were all busy revising up our estimates for how big Copilot can be, it seems investors have since tripped and fallen into the trough of AI disillusionment questioning both the actual functionality, the profitability, and ultimately the durable and sustainable competitive advantage.”
Microsoft
MSFT,
was once Big Tech’s poster child for AI, having invested in ChatGPT creator OpenAI and teased the various ways it would incorporate AI into its products, including through new new Copilot functions for apps like Word and Teams that are meant to enhance productivity.
But even as “the narrative may have taken a bit of a hit,” Zukin feels upbeat heading into Microsoft’s Oct. 24 report, pointing to improved fundamentals in the here and now.
“We see continued evidence of incremental share gains based on our checks…while sentiment remains mixed and options imply a 4.5% move vs. 4.7% the last eight quarters,” he wrote.
Read: Microsoft’s ‘undeniable’ opportunity in AI makes the stock a buy, says this bull
The company could also stand out in a shakier economic climate. “To be clear, the overall enterprise buying environment remains difficult, and while we have observed stabilization in the aggregate, we believe MSFT is uniquely positioned and is seeing some green shoots earlier than others,” he continued.
Zukin thinks Microsoft will be able to post 26% growth in fiscal first-quarter Azure revenue on a constant-currency basis and offer a fiscal second-quarter outlook for 25% growth, which would match the consensus view.
Microsoft shares are up 38% so far this year, though they’re down 8% over the past three months.
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