Shares of software giant Microsoft (MSFT 0.11%) jumped on Tuesday, rising about 4%. The catalyst for the stock's rise was the company's unveiling of its pricing for its new artificial intelligence (AI) assistant for its Microsoft 365 suite. Microsoft 365 Copilot, which helps streamline and supplement tasks across Word, PowerPoint, Outlook, Teams, and Excel, will cost an impressive $30 per user, per month.
This aggressive pricing adds substance to what was arguably a somewhat speculative product development effort until now. At such a steep price, Microsoft's revenue and operating income could see a significant boost from Copilot as workers embrace the assistant to alleviate tedious tasks and unleash creativity and productivity.
Customers are already benefiting
Giving credibility to Copilot and its aggressive $30 price point, investors should note that it wasn't arbitrarily decided. Instead, the company arrived at the price point as it received feedback from a robust early access program. The Copilot early access program boasted 600 enterprise customers globally. With such a large group to get feedback from, Microsoft must think customers will pay up for this high monthly price tag.
Users in the paid early access program are utilizing the product and finding value.
"We're learning that the more customers use Copilot, the more their enthusiasm for Copilot grows," Microsoft said in a press release on Tuesday. Feedback from these customers suggests that Copilot "promises to be a game changer for productivity," Microsoft predicted.
A key catalyst for the stock
AI is increasingly looking like a major catalyst for Microsoft. Already, a good case can be made for the buzz surrounding AI driving greater needs for compute power -- a development likely to positively impact Microsoft's cloud computing business, Azure, over time. Copilot will add to Microsoft's opportunities to generate revenue from AI.
The first way the $30 subscription add-on can lead to a significant uplift in revenue for Microsoft is by converting some of the company's Office 365 users to a Microsoft 365 subscription, which includes more software and features and costs more than Office 365. For now, Copilot is only a Microsoft 365 subscription option, not an add-on for the more limited Office 365 suite.
Second, adding the AI software to a 365 subscription would increase the price by around 50% to 80% for most users, according to analyst estimates. The impact on revenue could be massive. After all, the sheer number of Office 365 commercial seats is nothing to sneeze at; Microsoft's Office 365 commercial seats were 382 million at the end of its most recently reported quarter. Tapping into this installed base with an upsell could provide a huge lift to sales.
Finally, Copilot could attract a wave of new users who are interested in trying it.
Without a $30 AI subscription, Microsoft's current price-to-earnings ratio of about 39 would be questionable. But this new feature could be the difference that makes the stock a buy -- even at this level.
Though Microsoft hasn't said when Copilot will officially launch, it said in its press release today that it will "share more on timing in the coming months."
