Microsoft Stock Up On AI News Amid AI Stock Bubble Fears
Microsoft ( MSFT ) stock got a flurry of price-target increases on Wednesday after the company announced its artificial intelligence-powered Bing search engine and Edge web browser. But some analysts warn of a bubble in AI stocks.
At least five Wall Street brokerage firms raised their price targets on Microsoft shares after the software giant held a briefing on its AI efforts on Tuesday.
The Redmond, Wash.-based company announced that it is integrating the technology behind the viral chatbot ChatGPT into Bing and Edge. The announcement follows Microsoft’s multibillion-dollar investment in OpenAI, the company behind text generator ChatGPT and image generator Dall-E.
Microsoft could get a bigger share of Internet searches and search ads because of its AI improvements to Bing, Mizuho Securities analyst Gregg Moskowitz said in a note to clients.
Microsoft Stock Wavers
“The digital advertising market is set to reach $570 billion in 2022 (of which 40% is search), is growing in the high-teens, and is highly profitable,” Moskowitz said. “Microsoft also noted that each point of search share gain equates to a $2 billion annual revenue opportunity.”
Moskowitz reiterated his buy rating on Microsoft shares and raised his price target to 300 from 280.
In the stock market today, Microsoft stock fell 0.3% to close at 266.73. Earlier in the session it was as much as 3.4%.
Euphoria drives AI stocks to ‘crazy levels’
However, other analysts are skeptical of AI delivering big returns in the short term and have expressed concerns about an AI stock bubble.
“Call me skeptical, but this euphoria about ChatGPT and ‘generative AI’ is pushing many stocks to crazy levels,” Jordan Klein, managing director of technology, media and telecoms sector trading at Mizuho Securities, said in a note to clients on Wednesday.
He added, “I was in the dot-com era in the late ’90s in the bubble bursting. ChatGPT is by no means at that level of hype, but I feel some eerie similarities and it’s making me increasingly nervous.”
The market is in a hype phase where companies want to advance their artificial intelligence efforts to take advantage of the excitement about AI’s potential, he said.
Guggenheim analyst John DiFucci maintained his sell rating on Microsoft shares after the news.
“Microsoft was an early industry leader in the widespread promotion of its AI intentions, but will they benefit more than others? We don’t think so, or at least we think there’s a high risk of assuming that’s the case is,” DiFucci said in a note to clients.
Bing Sharing profits from Google will take time
Jefferies analyst Brent Thill was bullish on Microsoft shares following the company’s news. He maintained his buy rating and raised his price target to 310 from 275.
However, he said it will take time for the product improvements to boost Microsoft’s top and bottom lines.
“Search improvements will serve as a windfall of advertising revenue in the long term, but it will take time to bring users back to Bing and they will need leverage to drive advertisers away from Google,” Thill said in ‘ said a note to customers. Google controls about 85% of global search traffic, versus single digits for Bing.
Meanwhile, shares of Alphabet (GOOGL), parent company of search leader Google, fell on Wednesday. Investors reacted negatively to a new ad for Google’s Bard artificial intelligence chatbot that offered an incorrect answer.
Alphabet stock fell 7.7% to close at 99.37.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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