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Microsoft’s Bright Horizon: Bank of America Sees 17% Upside as AI Fuels Growth

As the tech world buzzes with anticipation for upcoming Big Tech earnings, all eyes are on Microsoft, expected to release first-quarter results on April 25. Analysts predict these results will highlight the burgeoning impact of artificial intelligence on the company’s growth, particularly in its Azure and Microsoft 365 offerings.

Bank of America remains optimistic about Microsoft’s trajectory, maintaining a robust $480 price target for the stock, which would mark a nearly 17% increase from its current trading level. This confidence stems from what the bank identifies as sustained strengths in Microsoft’s core segments.

“We expect Microsoft’s earnings to reflect an 11% year-over-year growth, driven by the robust performance of Azure and Microsoft 365,” noted Brad Sills and Adam Bergere, strategists at Bank of America. They anticipate that the upcoming earnings will underscore the tech giant’s adeptness at capitalizing on the AI revolution.

The real game-changer for Microsoft could be its advancing AI initiatives. Bank of America highlights potential growth engines like an increase in Microsoft 365 Copilot users and a rise in Commercial Office Average Selling Price (ASP). “Signs of accelerating traction in these AI-driven cycles could be the next major catalyst for Microsoft’s stock,” the analysts added.

For the next quarter, the bank projects the Productivity and Business Processes segment, under which Microsoft 365 falls, to see an 11.5% growth year-over-year, potentially bringing in $19.5 billion. This optimistic projection is fueled by anticipated gains in Commercial Office growth.

Despite Microsoft trading at 37 times its projected 2025 free cash flow, Bank of America believes this valuation is justified. They point to the explosive growth expected in the AI market, which is predicted to swell to $944 billion by 2027, as a key factor supporting Microsoft’s market position.

At the close of trading on Thursday, Microsoft’s shares were slightly down at $407.10 each. However, with the AI sector’s rapid expansion and Microsoft’s strategic positioning within it, the company’s outlook remains promising according to these analysts. Investors and market watchers are now keyed in on next week’s earnings report, which could very well confirm Microsoft’s trajectory towards harnessing AI for significant financial growth.