‘A Positive Move,’ Says Daniel Ives About Microsoft Stock

Microsoft (NASDAQ:MSFT) may have pulled off a surprisingly savvy move in the AI race. Following the latest changes to its partnership with OpenAI, Wedbush analyst Daniel Ives believes Microsoft could end up benefiting more than many investors initially expected from the revised arrangement with the ChatGPT creator.

Earlier this week, reports stated that OpenAI agreed to cap the total revenue share it pays Microsoft under their partnership at $38 billion through 2030, replacing a previous structure that could have resulted in far larger cumulative payments. The revised arrangement also allows OpenAI to distribute its models through other cloud providers, including AWS, Google Cloud, and Oracle, reducing Microsoft’s exclusivity advantage.

“Importantly,” says Ives, “while OpenAI saves materially over the long term, the renegotiated structure also removes OpenAI’s prior option to defer some payments to 2032, meaning OpenAI will pay ~$6 billion of its projected $30 billion in revenue to Microsoft this year, compared to the ~$4 billion previously projected.”

For Microsoft, the near-term effect is that cash inflows from the OpenAI partnership are effectively brought forward and accelerated, while the longer-term upside is limited by the cap.

Overall, Ives sees this revised structure as a “net positive” for Microsoft and its broader AI strategy, with the company securing several key structural advantages in exchange for capped long-term optionality. Microsoft locks in IP rights to OpenAI’s models and products through 2032, regardless of when AGI is declared, removing what was previously an “open-ended risk.” It also continues to serve as OpenAI’s main cloud provider while maintaining a substantial equity position in the company, thereby “preserving continued exposure” to OpenAI’s growth as it scales toward an IPO. At the same time, it will no longer be required to share revenue with OpenAI on Azure sales of OpenAI models to cloud customers, which eliminates a “meaningful drag” on Azure’s ability to monetize AI services more efficiently moving forward.

“In our view,” the 5-star analyst summed up, “Microsoft is reducing its dependency on a single highly concentrated commercial arrangement while maintaining strategic alignment with OpenAI and gaining the freedom to fully monetize AI across its own platform.”

To this end, Ives assigns MSFT an Outperform (i.e., Buy) rating, backed by a $575 price target, a figure that implies shares will gain 42% in the months ahead. (To watch Ives’ track record, click here)

Elsewhere on the Street, MSFT stock claims an additional 32 Buys and 2 Holds, all coalescing to a Strong Buy consensus rating. The forecast calls for 12-month returns of ~37%, considering the average target stands at $559.98. (See MSFT stock forecast)

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.