Microsoft's (MSFT +1.69%) business has been on a roll. Importantly, its Azure cloud business jumped by 31% year over year in the most recent quarter. Sales from its suite of Office products also jumped by double digits. Personal computing-related devices and services also increased by 17%.
That helps explain why Microsoft shares have jumped by more than 30% over the past year. The move higher has brought the company's market capitalization to over $3 trillion. But one Wall Street analyst already sees the $4 trillion mark on the horizon.
NASDAQ: MSFT
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New Street Research analyst Pierre Ferragu just initiated coverage on the tech giant with a "buy" rating and a $570 price target. That stock price would represent a gain of 33% from recent levels and give Microsoft a market cap of more than $4.2 trillion.
Ferragu noted that a key part of Microsoft's success has been monetizing its cloud business, which has helped drive profitability higher. He expects more of the same to continue driving the stock higher. But now Microsoft has an added catalyst, too.
Microsoft quickly partnered with OpenAI when that company set off the generative artificial intelligence (AI) boom. Ferragu thinks the company is in a good position with its Copilot AI offering. He thinks AI alone "could boost growth by several points every year, and for many years."
Microsoft's strong legacy business makes it a stock that most investors should want to hold. But that strength, and the potential for future profits from AI, make it a fairly expensive one, with a forward price-to-earnings (P/E) ratio in the mid-30s. That makes it a good candidate to buy in stages over time, increasing ownership as the market cycles.
But it is likely that eventually, Ferragu will be right, and Microsoft will one day be a $4 trillion company.
