Goldman Doubles Down on Microsoft Amid AI Boom

Goldman Sachs has reaffirmed its faith in Microsoft's (no ticker) artificial intelligence strategy, naming it their top pick in the sector. The bank met with Microsoft's leadership across two continents to discuss the company's approach to AI and its potential for long-term growth.

According to Goldman, Microsoft's decision to front-load capital expenditures has given the company greater flexibility over its short-term capex decisions. This strategy is now paying off as enterprises evaluate competing AI platforms.

The bank highlighted several key factors that support its bullish view, including Microsoft's balanced capital allocation between first-party applications and third-party customers. It also noted that 45% of Microsoft's remaining performance obligations are tied to OpenAI, but pointed out that the $51 billion RPO increase in the fourth quarter came entirely from enterprise customers.

Goldman has a Buy rating on Microsoft and includes it on its Conviction List, which flags the bank's most differentiated fundamental buy ideas. The bank set a price target of $600 in April, implying nearly 61% upside after the stock had dropped roughly 23% year to date.