03:33 PM EDT, 05/17/2024 (MT Newswires) -- Microsoft's ( MSFT ) trajectory for growth and leading position in artificial intelligence is encouraging, RBC Capital Markets said in a note Friday.

"Microsoft ( MSFT ) continues to invest aggressively in AI, given the market opportunity and its early leadership," RBC said. This strategy contrasts with Microsoft's ( MSFT ) previous approach to cloud computing when it was competing with Amazon.com's (AMZN) Amazon Web Services.

Despite expected increases in capital expenditures that could impact profit margins, Microsoft ( MSFT ) is viewed as aligning with market demand and actively seeking to mitigate costs, RBC said. "Advances like GPT-4o, which is more efficient, and Maia (custom AI silicon) will help drive down the cost curve."

Additionally, cloud computing and Copilot feature show promise, while security and gaming also have growth opportunities. Microsoft's ( MSFT ) strategic focus on software/services in gaming aims to enhance margins and reduce cyclicality.

The company believes customers will build their own AI models, not just from scratch, but fine-tune existing ones. Microsoft's ( MSFT ) investment in Copilot Stack, a tool to build and fine-tuning custom models, is a good decision that will be to its advantage in the future.

RBC raised its price target for Microsoft ( MSFT ) to $500 from $450, while maintaining outperform rating.

Price: 419.85, Change: -1.14, Percent Change: -0.27