Microsoft's (MSFT) pricing on its new AI-related product that will integrate into Microsoft Office has surprised Wall Street analysts to the upside.
At $30 per month, UBS analyst Karl Keirstead noted the price tag on the M365 Copilot product was "at the very high end of expectations."
"This materially raises our preliminary estimate of the FY25 Office [revenue] uplift, which we now estimate could be $7-9 [billion]," Keirstead wrote. UBS had previously estimated revenue of $3 billion to $5 billion.
Copilot, Microsoft's most expensive version of an AI-powered chatbot, is said to be able to summarize users' unread emails, reformat PowerPoint bullets, and write drafts based on outlines on demand, to name a few functions. The company has additional AI offerings including a chatbot integration through Bing and the Bing Chat Enterprise, which is free to Microsoft 365 subscribers or $5 for those outside the network.
Multiple analysts joined Keirstead in boosting projections after the announcement Tuesday as the stock popped roughly 4% and closed at an all-time high.
"While M365 Copilot is still only in a limited preview, and we are not baking any monetization into our model yet, it is clear that M365 Copilot and future AI pricing uplifts will be incremental to [revenue]," Jefferies equity analyst Brent Thill wrote in a note on Tuesday.
AI hype has played a major role in Microsoft stock's nearly 50% run-up this year. In January, the tech giant announced a $10 billion investment into OpenAI, the parent company of popular AI chatbot ChatGPT. In February, Microsoft teased a "new AI-Powered Microsoft Bing." By May, Bing was made the default search engine for ChatGPT as Microsoft officially brought the AI wars to turf previously owned by Alphabet (GOOGL) during first quarter earnings.
"Azure took share as customers continue to choose our ubiquitous computing fabric from cloud to edge, especially as every application becomes AI-powered," Microsoft Chairman and CEO Satya Nadella said on the company's earnings call in April. "We have the most powerful AI infrastructure, and it is being used by our partner, OpenAI, as well as Nvidia and leading AI start-ups like Adept and Inflection to train large models."
Investors have bought into that AI hype while pushing previous concerns surrounding slowing cloud growth to the side. Bank of America Research analyst Brad Sills raised his price target on Microsoft to $405 from $340 in a note on Wednesday while highlighting that AI could move full-year 2024 revenue higher throughout the year.
"We reiterate our Buy rating and view Microsoft as a top pick...given our view of Microsoft as a leading AI play in software," Sills wrote.
Josh Schafer is a reporter for Yahoo Finance.
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