Concerns over artificial-intelligence spending are coming to a head, with investors fearing the formation of a trillion-dollar bubble. It’s no problem for Microsoft.
That’s according to D.A. Davidson analyst Gil Luria, who reiterated a Buy rating and $650 price target on the shares Thursday, arguing that Microsoft was poised to be “the biggest winner in the AI ramp.” Shares closed higher 0.7% at $480.84, in line with the benchmark S&P 500.
Luria didn’t outright deny the existence of an AI bubble—but he didn’t come down on one side of the argument, either. In any case, Microsoft offers “the best AI exposure, bubble or no bubble,” he wrote.
Luria struck an incrementally more negative tone regarding OpenAI, the private company often viewed as the poster child of the AI trade, which is so influential that major partners like Oracle are viewed as a proxy for it.
“While we have been very, very critical of OpenAI and some of its behavior, we do not believe it is going away,” Luria wrote, noting that ChatGPT, its biggest offering, has captured roughly 75% share of the AI chat market.
In a best-case scenario in which OpenAI hones its focuses and renegotiates its contracts with marginal players, “Microsoft will be front of the line for spend given its ownership stake and deep integration into the most valuable pieces of OpenAI’s compute,” Luria asserted.
He projects that Microsoft gets more than half of its Azure AI revenue from OpenAI, as well as 6% of total revenue. At its core, Azure is a suite of cloud-based services, which includes tools for building and scaling AI applications.
Microsoft has continually added more AI functionality to the platform. In 2021, the company rolled out Azure OpenAI, providing users access to OpenAI’s chatbots over the cloud. The service became generally available in 2023.
D.A. Davidson’s proprietary developer data “continues to show strong growth in Azure,” Luria wrote on Thursday. “Azure continued to significantly outperform Google Cloud and AWS in the September quarter, and we expect those trends to continue.”
Other firms have been similarly positive. As far back as May, UBS analysts remarked that Azure was outpacing cloud offerings from Amazon and Google as core sequential dollar growth rose 62% in the third quarter, outstripping single-digit percentage gains among its peers.
While it was difficult to grasp why at the time, analysts suspected a shift away from other Microsoft services was contributing disproportionately to Azure’s outperformance.
Microsoft said at the end of fiscal 2025 that Azure had topped $75 billion in revenue, marking a 34% increase from the prior year. As the company previously lumped Azure revenue into its “Intelligent Cloud” segment, the disclosure appeared to signal Microsoft’s confidence that the results could stand on their own.
Luria noted that Microsoft deliberately carved off “demanding, lumpy and unpredictable pre-training compute” to CoreWeave and Oracle, while retaining OpenAI’s API compute spend.
An API, or application programming interface, allows software components to communicate with each other. In OpenAI’s case, this essentially allows other companies to integrate its generative AI models into their own software.
“The API portion is the most profitable part of OpenAI’s business, which makes it more sustainable,” Luria wrote. “It is also the volume that allows Microsoft to upsell data fabric and other infrastructure software, thus getting growth leverage and lifting AI margins overall.”
At the same time, Microsoft has diversified its bets by investing in Anthropic as well as the development of its own AI. This makes Microsoft and Amazon the only agnostic AI compute providers, while Google and Meta Platforms are tied to the possibility of succeeding with their own models—a higher-stakes approach.
There’s no overlooking Microsoft’s deep ties to OpenAI. The partners have worked together since 2019, just months after OpenAI began its transition to a for-profit structure. Today, Microsoft has a significant stake in OpenAI Group Public Benefit Corporation, which was valued at roughly $135 billion as of the end of October.
