Morgan Stanley Sees AI Pushing Microsoft Into The $3 Trillion Club

Morgan Stanley Sees AI Pushing Microsoft Into The $3 Trillion Club
Reda Farran, CFA

5 months ago1 min

The elite club of US companies with a $3 trillion market cap until now has been a party of one. But Morgan Stanley says AI-driven gains could see Microsoft joining Apple’s exclusive little clique. The investment bank just raised its price target for Microsoft’s shares to $415 – about 25% higher than they go for now and implying a $3.1 trillion valuation. The firm is Morgan Stanley’s top pick among big-cap software companies, predicting that it’s best positioned in the sector to benefit from the AI boom.

The bank’s bullish call comes despite a near-40% rally this year in Microsoft’s shares. Its analysts say the call is driven in part by the company’s PEG ratio (that is, the forward price-to-earnings multiple divided by the expected percentage growth in earnings), which remains only in line with historical averages despite the growth potential offered by AI. This chart shows Microsoft’s PEG ratio (white line) and its ten-year average (red line).

Still, not everyone’s convinced by the market frenzy for all things AI. Over 70% of the 346 investors surveyed recently by Bloomberg said that the impact from AI on the tech sector’s earnings is overblown (and about a third of retail investors surveyed recently by Finimize said AI is overhyped more generally). That leaves companies leading the AI push, including Microsoft and Nvidia, more vulnerable to stock declines should their earnings fail to meet investors' lofty expectations.



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