Microsoft (MSFT -0.88%) is on the brink of joining the most exclusive stock market club in the world.
At least, that's according to a noted tech sector analyst who believes the company's share price can swell to hit the once-unthinkable $3 trillion market cap. The stock still has some distance to go, with that metric standing at a mere $2.47 trillion as of this writing. Let's gaze into the crystal ball to see whether this prognosticator's projection might be realistic.
Artificial intelligence, genuine growth
That $3 trillion mark is freshly significant for many market players, as that's the level Microsoft peer/rival Apple (AAPL 0.62%) reached at the end of June -- the only U.S. stock to have ever done so. Since then, unfortunately for Apple shareholders like myself, it's retreated somewhat but is still hovering just shy of that level.
The person who believes Microsoft can join the $3 trillion club is veteran tech industry analyst Dan Ives of Wedbush Securities. In his view, the reigning king of Redmond could become a member of that grouping in 2024.
For Microsoft watchers, it won't come as a shock to learn Ives' main line of reasoning behind this confident prediction -- the company's deep involvement in artificial intelligence (AI). It's heavily invested in OpenAI, the privately held company responsible for the ultra-popular ChatGPT app.
Microsoft, of course, isn't plowing capital into OpenAI to keep a bunch of AI specialists employed or to altruistically push the technology forward. The company intends to harness AI to bolster its own offerings, both of the free variety (with its Bing search engine) and paid, notably its rather successful and ever-growing Azure cloud computing service.
This is the foundation of Ives' belief that Microsoft's market cap will reach $3 trillion next year. According to his estimates, having OpenAI in its hip pocket means Microsoft can reap an additional $35 to $40 in spending (for AI add-ons) for every $100 currently laid out by clients on Azure services.
Of the company's three operating segments, intelligent cloud -- the one to which Azure belongs -- booked a 25% annual increase in revenue in fiscal 2022. That was the highest growth among the trio and widened the segment's lead in terms of contribution to overall revenue (at 38%, up from 34% only two years prior).
In other words, in a world always hungry for cloud functionalities, Azure is big and quickly getting ever bigger. We can imagine the effect an AI-powered jump in Azure spending might have on that dynamic.
Unstoppable AI
Microsoft doesn't exist in a vacuum, of course. Ives feels that numerous companies involved in AI will reap the benefits of the technology's popularity in the months and years to come. Not only that, in his view, this will spill over into a sustained bull market for tech companies in general.
For instance, he's counting on Apple to continue to shatter the market cap record. He feels it can even reach the $4 trillion line by 2025.
I think the analyst's predictions are very realistic, both for the entirety of the tech sector and for Microsoft specifically (and Apple, while we're at it). Planet Earth is only at the very beginning of the AI Revolution, and Microsoft is in the vanguard. It might even top mighty Apple's market cap if it plays the situation well.