Piper Sandler names its 'highest conviction' large-cap stock to own into the year-end

Published Wed, Oct 18 20238:27 PM EDTUpdated Wed, Oct 18 20239:14 PM EDT

Piper Sandler named Microsoft as its "highest conviction" large-cap stock to own into the year-end. Analysts from the financial services company pointed to a few drivers for the stock in an Oct. 15 note. One of them is what they described as Microsoft's "first-mover advantage" in generative artificial intelligence. Earlier this year, Microsoft pushed ahead with its ChatGPT AI chatbot, which was developed by OpenAI. Microsoft has since expanded its plans surrounding ChatGPT — partnering automakers to test the AI tech in vehicles, adding it to its suite of Microsoft Office applications as well as other external software plug-ins, and more. Piper Sandler also described Microsoft's upcoming M365 Copilot in November as a catalyst. The feature is the company's AI supplement to core productivity apps such as Word and Excel. Microsoft first revealed plans for Microsoft 365 Copilot in March . As of May, 600 organizations were using it in a paid early-access program. Piper Sandler is optimistic, noting there's been increased traffic to Microsoft's Copilot adoption website. "In our view, this hints at an inflection of IT administrators preparing for M365 Copilot," it said. "[There's] multiple upside levers to revenue and EPS growth over the next 3-5 years," its analysts concluded. Amy Hood, Microsoft's finance chief, said in a July earnings call that as Microsoft makes investments to meet rising demand for AI services, the company should see the impact of higher revenue in the second half of the 2024 fiscal year. Microsoft shares have jumped this year, rising 38.71% in the year to date, higher than the S & P 500's 18.5%. Piper Sandler believes it has further upside, giving it a price target of $400. That represents roughly 20% potential upside from Monday's close. It's close to the potential upside of 19.5% represented by the average price target that analysts covering the stock gave it, according to FactSet. — CNBC's Michael Bloom and Jordan Novet contributed to this report.