Among mega-cap tech stocks, one of the more impressive movers this year has undoubtedly been Microsoft (NASDAQ:MSFT). Shares of MSFT stock are up approximately 45% on the year. And while this company is trading sideways today, there are reasons why investors continue to focus on this name today.
Analysts remain outright bullish on the ability of Microsoft to turn key secular growth catalysts into higher profitability and revenue numbers over the long term. Today, Goldman Sachs analysts joined the chorus of analysts calling for a $400 price target on MSFT stock. As expected, higher sales and profitability arising from artificial intelligence (AI) drove this higher potential valuation.
At $400 per share, Microsoft would be hovering right around a $3 trillion valuation, becoming only the second company in the U.S. to achieve such a level. Thus, this price target may be more symbolic as a key threshold than anything else.
That said, there’s some solid rationale behind this target price increase from $350 per share to $400. Let’s dive into what has analysts growing increasingly bullish on Microsoft right now.
MSFT Stock Could Hit $400 Per Share, If Analysts Are Correct
Microsoft’s recent Copilot announcement, and the company’s AI-focused growth strategy, are key components of the bullish thesis many experts hold on this company. Analysts expect to see a user base of around 380 million users, each paying around $30 per month. This would generate a total addressable market (TAM) of around $11.4 billion or a little more than $135 billion per year.
If analysts are correct, and Microsoft can entice 15%-30% of its user base to adopt Copilot, this technology alone could account for tens of billions of dollars in revenue each and every year for the firm. At existing profit margin levels, that would be meaningful for the company’s bottom line as well.
Of course, any sort of incremental growth from Microsoft’s AI product would complement strong growth from other key segments. Microsoft’s Cloud division is expected to continue to grow at a 20% annual clip in the years to come. And there’s always the stability and recurring revenue of the company’s core software business that provides stability and a floor under this stock.
Overall, there’s a lot to like about Microsoft as both a robust and stable tech player, as well as a company with the potential to see growth re-accelerate. If we do see numbers improve in the coming quarters, a $400 price target may seem light in hindsight. Of course, macro variables and other factors could render such views too optimistic. But that’s what makes a market, and this will clearly be a stock to watch for many investors with a well-diversified portfolio.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
