Wells Fargo & Company expects Microsoft Corporation's AI revenue to surpass $100 billion, and has raised its target price to $585.

Wells Fargo & Company maintains a "hold" rating on Microsoft Corporation (MSFT.US) and has raised the target price from $565 to $585. The firm emphasized Microsoft Corporation's ambitious plans in artificial intelligence (AI) and noted that they are still in the early stages. The Wells Fargo & Company analyst team, led by Michael Turrin, stated that their analysis of Microsoft Corporation's AI business indicates that by the fiscal year 2029, the revenue from this business could surpass $100 billion. They also predict that this year, Microsoft Corporation's AI narrative will increasingly focus on the application layer/Copilot. Analysts remain optimistic about Microsoft Corporation's positioning and future prospects. They believe that despite significant constraints, Microsoft Corporation will expand its annual recurring revenue (ARR) from its AI business to $13 billion in less than three years, which is the fastest business expansion case in its history. Analysts estimate that by the end of the fiscal year ending in June 2025, the size of this business will be close to $20 billion and will further expand with the relaxation of restrictions and capacity. In an optimistic scenario, by the fiscal year 2029, the revenue from this business will grow to over $100 billion, with an annual net addition revenue growth rate of over 25%. In a base scenario, analysts predict that the annual net addition revenue growth of this business will grow at a double-digit rate, with the AI business revenue in the fiscal year 2029 exceeding $80 billion. Turrin and his team suggest that despite reports that negotiations between Microsoft Corporation and OpenAI are ongoing, they believe that there are unlikely to be significant changes to the existing contract agreements unless there is a substantial increase in Microsoft Corporation's net revenue share (i.e., over 20%); extension/expansion of IP access and contract terms/scopes (i.e., beyond 2030); or removal of profit cap/terms (i.e., cancellation of AGI terms). Analysts add that aside from Microsoft Corporation relinquishing its exclusive capacity rights in January 2025 (which benefits all companies), they do not expect many other changes. Analysts expect Copilot to reach a critical scale by the fiscal year 2026. Over time, analysts estimate that with a market penetration rate of 10% and appropriate discounts, Microsoft Corporation's Copilot will generate $12 billion in annual recurring revenue. As of the time of writing, Microsoft Corporation was up 0.42% in pre-market trading, at $492.165.