What happened

Shares of Microsoft (MSFT 1.33%) ticked higher in Friday trading, rising as much as 2.6% in the morning before retreating to a 1.6% gain as of 1:22 p.m. ET.

You can thank Wall Street for that.

So what

In a series of analyst notes out this morning, multiple Wall Street firms laid out their thoughts on Microsoft and how the tech giant might benefit from the rapid rise of artificial intelligence technology -- and "generative AI" in particular.

Citing Microsoft's just-unveiled Microsoft 365 AI "Copilot," which can use ChatGPT technology to create first drafts of Word documents, PowerPoint presentations, Excel spreadsheets, and Outlook emails, Mizuho Securities predicted the product will be a "productivity enhancer" for Microsoft's customers and possibly a sales enhancer for Microsoft. Mizuho then proceeded to raise its price target on buy-rated Microsoft stock to $315 a share.  

UBS also upped its price target on Microsoft stock, albeit to only $275, and only maintained a neutral rating on the stock. But Morgan Stanley chimed in that Microsoft already has a base of nearly 500 million Office users and pointed out that the company can charge extra for adding Copilot functionality to their products and thus upsell its existing customers even as it attracts new ones.    

Like Mizuho, Morgan Stanley rates Microsoft stock a "buy."

Now what

ChatGPT has caused a lot of excitement among stock investors, and Microsoft's heavy investment in OpenAI -- the company that built ChatGPT -- makes Microsoft a logical beneficiary of investors' high hopes for the technology.

But let's not get ahead of ourselves here.

Not every "cool" new technology will sell well. (Take Alphabet's (GOOG 2.21%) (GOOGL 2.26%) "Glass" smart glasses, for example, a technology that was ahead of its time and that Google announced today it is giving up on.) And not even every technology that does sell well will also sell profitably. When you consider the massive processing power needed to run generative AI, it remains to be seen whether ChatGPT and Copilot will be money-makers for Microsoft in the long run...or money losers.  

What is certain is that at a valuation of 30.5 times trailing earnings and closer to 34.5 times trailing free cash flow, Microsoft is anything but a cheap stock right now. ChatGPT notwithstanding, most analysts who follow the stock aren't predicting more than 11% long-term earnings growth out of the stock. That's a big premium Microsoft investors are paying for their AI dreams.

I'm not at all convinced Microsoft stock will turn out to be worth that premium.