On Wall Street these days, artificial intelligence is on everyone’s mind (And after Nvidia’s blowout earnings report last week, how could it be otherwise?). Open AI’s ChatGPT. Anthropic’s “Claude.” Google’s Bard — and Google’s Gemini, too. Why, even Microsoft’s (NASDAQ:MSFT) Bing has an AI angle.
But coming entirely out of left field on Monday morning is a contender I’ll bet few investors have heard of before. It comes from France, and its name is… Mistral.
In a surprise announcement, on Monday Microsoft announced it will allow Mistral AI’s “Mistral Large” artificial intelligence programs to make use of Microsoft’s own Azure cloud computing platform under a multi-year contract. In turn, Microsoft will take a small stake in Mistral itself. This move ties Mistral closely to Microsoft, and may draw the company away from Amazon and Alphabet, two other companies who have been facilitating use of its AI models.
What does this mean for investors?
Macquarie analyst Frederick Havemeyer argued that what Microsoft is doing with Mistral has the potential to generate strong profit margins for Microsoft itself, on the order of 73% to 87% gross profit margins for the Azure division. Now, Microsoft doesn’t break out gross profit margins by division, but the entire company generated gross margins of just under 70% last year. That suggests that the profit margins from AI could be superior, and give Microsoft’s profits a boost. Although with $82.5 billion in net profit last year, it’s not like Microsoft was hurting for profits before.
What’s of perhaps greater significance to investors, though, is just how fast things are changing in tech today. Recall that AI only really became a “thing” when ChatGPT was released to the public in late November 2022 — less than 15 months ago. Mistral is an even newer kid on the block, having been founded only in April 2023 by researchers from Meta and Google. Mistral’s first working AI model, meanwhile, was released less than six months ago, in September 2023.
Yes, you read that right. A thing that wasn’t even a thing six months ago… now has the potential to earn Microsoft as much as $0.87 in profit for every $1 in revenue it produces.
Havemeyer cites a series of statistics on Mistral’s popularity: The “Mistral Medium model is presently ranked #6 on the Chatbot Arena leaderboard;” “Mistral’s “Mixtral 8x7B Instruct mixture of experts (MOE) model is presently ranked #12;” and it’s “the only open-source model to crack the top 15 of this ranking.”
To this end, Havemeyer rates MSFT shares as a Buy, while setting a $455 price target. This projection suggests a 12% upside potential from current levels, potentially propelling the tech giant to a new all-time high. (To watch Havemeyer’s track record, click here)
A quick glance at the consensus view on MSFT shows that Wall Street is in broad agreement with the bullish stance – the stock has 35 reviews on record, with 33 Buy ratings and just 1 Hold and Sell each backing up the Strong Buy consensus view. MSFT is selling for $406.30, and its $469.58 average price target suggests it has room for 15.5% share appreciation in the coming year. (See MSFT stock forecast)
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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.
