In a note Thursday, KeyBanc Capital Markets initiated Microsoft (NASDAQ:MSFT) with an Overweight rating and a $490 per share price target.
The firm launched coverage of the enterprise and front-office software sector. It said it likes large-cap and early AI leaders and sees smaller caps as a bit out of favor.
For Microsoft, KeyBanc said it has two preferred ways to monetize AI, and the tech giant sits at the top of both those lists.
Given that Microsoft is an early AI beneficiary, Keybanc is "riding that wave," adding that it is one of a few companies that has achievable revenue acceleration goals.
"Between Azure and the suite of copilots being rolled out across Office and elsewhere in the product portfolio, Microsoft sits in the catbird seat in two of the three main ways software vendors can monetize the AI wave," the firm wrote.
"We are unfazed by the recent debate around Azure's growth mix between AI and non-AI as we see AI's rise in the revenue stream as a positive symptom of the Company's strength in the public cloud space," they added. "2023 was the first year Azure added the plurality of the growth in public cloud spend, and we expect that trend to continue."
Between the scarcity of investible assets with tangible AI exposure and the rarity of being able to own Microsoft as a growth company among its large-cap peers, KeyBanc believes paying today's premium multiple for Microsoft shares is "worth the price."