Microsoft stock received a flurry of price-target hikes on Wednesday after the company announced its artificial intelligence-powered Bing search engine and Edge web browser. But some analysts are warning of a bubble in AI stocks.
At least five Wall Street brokerage firms hiked their price targets on Microsoft stock 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 gain a larger share of internet searches and search advertising as a result of its AI improvements to Bing, Mizuho Securities analyst Gregg Moskowitz said in a note to clients.
Microsoft Stock Wavers
"The digital advertising market stands at $570 billion in 2022 (of which 40% is search), is growing high-teens, and is highly profitable," Moskowitz said. "Microsoft also noted that each point of search share gain translates to a $2 billion annual revenue opportunity."
Moskowitz reiterated his buy rating on Microsoft stock and raised his price target to 300 from 280.
On the stock market today, Microsoft stock dipped 0.3% to close at 266.73. Earlier in the session, it was up as much as 3.4%.
Euphoria Driving AI Stocks To 'Crazy Levels'
However, other analysts are skeptical of AI providing big returns near term and raised concerns about an AI stock bubble.
"Call me skeptical, but this euphoria over ChatGPT and 'generative AI' is pushing a lot of stocks to crazy levels," Jordan Klein, managing director for tech, media and telecom sector trading at Mizuho Securities, said in a note to clients Wednesday.
He added, "I was around in the dot-com era in the late '90s into the bubble bursting. ChatGPT is by no means at that level of hype, but sensing some scary similarities and that makes me incrementally nervous."
The market is in a hype phase where companies want to promote their artificial intelligence efforts to take advantage of the excitement about AI's potential, he said.
Guggenheim analyst John DiFucci kept his sell rating on Microsoft stock after the news.
"Microsoft has been an early industry leader in widely promoting its AI intentions, but will they benefit more than others? We don't think so, or we at least think that there's a high risk in assuming that to be the case," DiFucci said in a note to clients.
Bing Share Gains From Google Will Take Time
Jefferies analyst Brent Thill was upbeat on Microsoft stock after the company's news. He maintained his buy rating and upped his price target to 310 from 275.
However, he said it will take time for the product enhancements to boost Microsoft's top and bottom lines.
"Search improvements will act as a tailwind to ad revenue long term, but it will take time to bring users back to Bing and they will need a crowbar to pry away advertisers from Google," Thill said in a note to clients. Google controls about 85% of global search traffic, vs. single digits for Bing.
Meanwhile, shares of Alphabet, parent company of search leader Google, dropped 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.
