Microsoft (MSFT, Financials) is exhibiting hopeful signs of restored investor interest as analysts at Bernstein point out the solid profit margins linked with the artificial intelligence capabilities of the computer juggernaut. Microsoft's strategic AI posture is seen as a long-term growth driver even if it lags behind its rivals and the wider market indices over 2024.
Mostly from its software-as-a-service products—including Copilot suite and Azure AI, which spans Azure OpenAI services— Microsoft's AI income comes from These products, according to Bernstein analyst Mark Moerdler, provide a consistent income source less reliant on startup-driven training for big language models. According to Moerdler, this arrangement places Microsoft's AI efforts as a contribution to general profitability instead of a possible financial burden.
By the completion of its fiscal second quarter of 2025, the company's AI revenue exceeded a $10 billion yearly run rate. While Azure OpenAI counts between $5.1 billion and $5.8 billion, Azure AI is anticipated to add around $9.7 billion to this total. Another important service, GitHub Copilot, is expected to operate annually between $1 billion and $1.1 billion in the next quarter.
With a penetration rate of around 0.7% to 1% in its first year, Moerdler pointed out that Office 365 Copilot has rapidly acquired popularity producing a yearly revenue run rate of $1 billion to $1.5 billion. Setting a benchmark for the expansion of Microsoft's other artificial intelligence products, he said the adoption rate is among the quickest among business solutions. Moerdler expressed hope in the solution's ability for steady expansion over the next years, even if he admitted the income statistics would not satisfy first expectations.
Another key area of the analysis was the link between Microsoft and OpenAI. Media sources indicate that OpenAI's estimated income of $3.7 billion in 2024—including $2.7 billion from ChatGPT—may cause Microsoft to have inferencing income ranging from $2.5 billion to $3 billion in fiscal 2025. Moerdler underlined that Microsoft's set agreements with OpenAI provide control via public financing systems and help to reduce financial risks.
Recent events emphasize even more Microsoft's strong market standing. Regarding Microsoft's numerous income sources—including its supremacy in cloud computing via Azure, its expanding presence in generative artificial intelligence, and its acquisition practices—analysts remain hopeful.
Microsoft further created news with its $69 billion purchase of Activision Blizzard, thereby confirming its presence in the gaming sector. Completed in 2024, the agreement improves the Xbox products and strengthens the subscription gaming model of the business, which analysts see as a high-margin development potential region. Furthermore highlighting the company's dedication to provide value to its investors are its 0.8% dividend yield and continuous share repurchase policies. With free cash flow exceeding $60 billion in fiscal 2024, Microsoft shows financial resiliency and capacity to make investments in areas of future expansion.
Although Microsoft's stock has been very steady recently, Bernstein expects a change in mood in the next year. Driven by its strong AI margins, expanding cloud usage, and strategic investments, Moerdler said investors are probably going to consider Microsoft as a must-own company over the next 12 months.
