Microsoft Corporation (MSFT): A Bull Case Theory

We came across a bullish thesis on Microsoft Corporation (MSFT) on Substack by Charly AI. In this article, we will summarize the bulls’ thesis on MSFT. Microsoft Corporation (MSFT)’s share was trading at $447.20 as of Jan 28^th. MSFT’s trailing and forward P/E were 36.93 and 34.01 respectively according to Yahoo Finance.

The release of DeepSeek’s R1 model has raised significant concerns for Microsoft, which is heavily invested in OpenAI, the creator of the O1 series. As the commoditization of AI accelerates, with models like R1 available at drastically lower prices, Microsoft’s partnership with OpenAI faces new challenges. The pricing of DeepSeek’s APIs is 96% lower than OpenAI’s, threatening the viability of the premium AI infrastructure Microsoft has built around OpenAI’s technology. If users migrate to free, open-source alternatives, Microsoft’s $10 billion investment in OpenAI could become less profitable, putting pressure on the company’s valuation.

However, Microsoft’s CEO Satya Nadella, known for his adept pivoting strategies, may turn this situation into an opportunity. He has embraced open-source principles in the past, notably with moves like adopting Chromium for Edge and expanding GitHub Copilot to include multiple AI models. In the face of the commoditized AI landscape, Microsoft’s Azure cloud platform could evolve to offer open-source models as APIs, integrating cheaper, efficient models like R1 into its products while keeping enterprise customers engaged. While short-term challenges are inevitable if OpenAI struggles, Microsoft’s ability to adapt could make Azure a dominant player in the long term, even in a market with thinner margins.

Microsoft Corporation (MSFT) is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 279 hedge fund portfolios held MSFT at the end of the third quarter which was 279 in the previous quarter. While we acknowledge the risk and potential of MSFT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.