Microsoft Growth Potential Skyrockets: Morgan Stanley Sees EPS Doubling by 2029

Morgan Stanley has significantly raised its price target for Overweight-rated Microsoft (NASDAQ:MSFT), highlighting the substantial growth potential of this tech giant. In their latest note released on Thursday, Morgan Stanley's analysts have adjusted the price target from $465 to an impressive $520 per share, underscoring the bullish outlook for Microsoft's growth potential in the coming years.

The key drivers of this optimistic forecast are rooted in Microsoft's strong positioning within the core secular growth areas in technology, specifically Cloud and GenAI. These areas, according to Morgan Stanley, not only showcase Microsoft's innovative capacity but also cement its status as a leader in operational efficiency. The firm's analysts project a 14% revenue CAGR (Compound Annual Growth Rate) and a remarkable 16% EPS (Earnings Per Share) CAGR through FY29, reflecting the significant Microsoft growth potential.

Moreover, Morgan Stanley emphasizes Microsoft's early leadership role in generative AI, which is expected to compound its market share gains. The analysts estimate an additional 3.5 percentage points in share growth over the next three years due to this factor. "Our base case forecast suggests Generative AI-related revenues to increase from $5 billion in FY24 to a striking $67 billion in FY29, contributing approximately 4% points of annual growth," the bank added.

In summary, the growth potential of Microsoft, particularly in the AI arena, is expected to foster a mid-teens EPS CAGR over a five-year period, which is on par with industry peers. This steady and strong EPS growth trajectory, guided by Microsoft's technological advancements and market leadership, is expected to sustain the stock's premium valuation.