Morgan Stanley: Microsoft, you need to take up the banner of "AI Monetization"

Author: Li Xiaoyin

Source: Hard AI

As the AI ​​boom continues to advance, massive capital expenditures and minimal commercial returns are testing investors' patience, and discussions about AI commercial returns are becoming increasingly "hot."

On July 15th, Morgan Stanley analysts Keith Weiss and Josh Bae released their latest research report on Microsoft's "AI monetization."

Morgan Stanley stated that concerns in the market about Microsoft's AI monetization have put pressure on the company's stock price . Therefore, for Microsoft, addressing the issue of return on investment may be the company's top priority at the moment.

The report mentioned that in the past three months, Microsoft's stock performance has lagged behind that of large peers and the overall market, reflecting an undervaluation of Microsoft's mid-term prospects in "AI monetization."

However, Morgan Stanley still expressed confidence in the ability of core IT spending to drive growth in Microsoft's AI business, expecting the company's future earnings per share to continue to grow by double digits.

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In the report, Morgan Stanley stated that Microsoft's capital expenditures are expected to increase further, to some extent impacting the gross profit margin of the AI business.

Data from the report shows that Microsoft's total capital expenditures are expected to increase from $32 billion in fiscal year 23 to $63 billion in fiscal year 25, nearly doubling.

Based on this, Morgan Stanley predicts that within a gross profit margin range of 50%-70%, the implied AI revenue from Microsoft's capital expenditures in fiscal year 24 will be $5.8-9.6 billion, rising to $46.5-77.4 billion by fiscal year 27.

Calculating based on the median of the expected implied AI revenue, Microsoft's AI capital return rate this year is expected to reach 13.8%, jumping significantly to 35% next year.

However, the report also added that investments in OpenAI data centers are not included in Microsoft's capital expenditures, indicating that the company's investments in infrastructure may be much higher than the current publicly disclosed level.

Moreover, considering that future investments required for OpenAI training models may grow exponentially, it could exacerbate concerns about Microsoft's AI capital expenditures The report indicates that in the short term, AI capital expenditures will continue to be a drag on gross margins. It is expected that Microsoft's cloud business gross margin will decline by about 2% year-on-year in the fourth quarter, and the management's guidance for a 100 basis point year-on-year decline in operating profit margin for the 25th fiscal year is unlikely to change.

However, in the long term, improvements in operational efficiency may lead to higher profit margins. Microsoft may also support its long-term revenue growth through public cloud adoption, a strong position in the AI field, and the flexibility of its business model