As a general rule, I ignore Wall Street’s non-stop merry-go-round of upgrades and downgrades. However, while the prognostications about where a stock price is headed over the coming year are virtually meaningless to long-term investors, the logic behind the moves can yield valuable insight regarding a company’s prospects. Such is the case here.

Truist Securities analyst Joel Fishbein initiated coverage of Microsoft (NASDAQ: MSFT) stock, issuing a buy rating and three-year price target of $600. That represents potential gains for investors of 60%, compared to the stock’s closing price on Wednesday, even though it’s moved 56% higher so far this year. Also, note the three-year time frame, which makes his view more valuable to long-term investors.

At first glance, the math doesn’t appear to be a stretch as it suggests a compound annual growth rate of roughly 17%. Notwithstanding last year’s historic downturn, Microsoft stock has gained 75% (or 21% annually) over the past three years, so the analyst isn’t going out on a limb here.

But what Fishbein says about Microsoft’s prospects is telling. And it won’t surprise anyone who’s been paying attention that he believes the biggest driver will be artificial intelligence (AI).

The analyst cites Microsoft’s “early investments” in AI, which places them in a “leadership position in … the fastest growing multi-billion-dollar market in technology.” Perhaps more importantly, the upside will come over multiple years as an increasing number of companies adopt AI.

Microsoft was quick to roll out generative AI tools to its cloud infrastructure customers, and investors have already seen the early impact on the company’s results. During its fiscal 2024 first quarter (ended Sept. 30), Microsoft took market share from its largest rivals, while attributing roughly three points of its cloud growth to increasing demand for AI services.

The company also has just started to roll out Microsoft Copilot, the generative AI assistant deeply integrated into its software products and services. Wall Street believes it could add billions of dollars in incremental revenue over the next few years.

Furthermore, most analysts who offer an opinion estimate the market opportunity from AI in the trillions of dollars. And the trend is just getting started.

Given the scope of the opportunity and Microsoft’s unique place in the tech ecosystem, I suspect the analyst was a bit on the conservative side.

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Danny Vena has positions in Microsoft. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Original: MSFT Feed: Is Microsoft Going to $600? 1 Wall Street Analyst Thinks So.