11:46 AM EDT, 06/07/2024 (MT Newswires) -- Microsoft's ( MSFT ) partnership with OpenAI is "positive and sustainable" and likely to help the technology giant reach $50 billion in generative artificial intelligence revenue in four years, Oppenheimer said in a note e-mailed Friday.

OpenAI, the parent company of generative AI chatbot ChatGPT, is valued at an estimated $86 billion and has received multi-billion dollar investments from Microsoft ( MSFT ), the brokerage said. The companies' partnership helped position Microsoft's ( MSFT ) Azure as the leading cloud-computing platform for AI and is an important factor in continuing its cloud share gains, according to the note.

"A majority of new AI applications are built on this partnership because of the strength of OpenAI's (large language models), Microsoft's ( MSFT ) great enterprise relationships, infrastructure optimized for OpenAI, training data, a complete (information technology) bundle, and the AI flywheel of learning from Copilot usage," Oppenheimer analysts Timothy Horan and Maxwell Holm said.

Microsoft ( MSFT ) is expected to reach $50 billion in GenAI revenue in four years requiring $50 billion of capital expenditures, according to the analysts. The company should be able to top its projected 100 basis points of cloud market share gains by 100 basis points to 200 basis points, adding $3 billion to $6 billion of incremental revenue, the firm said.

Oppenheimer expects Microsoft ( MSFT ) to receive nearly 17% of Nvidia's ( NVDA ) graphics processing unit shipments going forward. Among enterprise-focused businesses, Microsoft ( MSFT ) received about 60% of GPU shipments last year -- a trend likely to continue, according to the note.

OpenAI's new GPT-4o "dominates" the market despite improving competition in AI, with the advantage likely to prompt Apple ( AAPL ) to use the platform to establish a consumer digital assistant, Horan and Holm said. The brokerage expects Microsoft ( MSFT ) to dominate business digital assistants integrated with its apps via Copilot, the duo wrote.

GPT-5 is expected to be released by the end of the year and should be "a major improvement to further solidify" the OpenAI-Microsoft partnership's lead in generative AI, the analysts said.

"While we think Microsoft ( MSFT ) has effective control over OpenAI, this is likely an unstable relationship over the long run, with substantial risks that require Microsoft ( MSFT ) to diversify its AI model supply," the analysts said. While the partnership is expected to be long-lasting, it likely faces risks from a lack of datacenters to run the GPUs and a delay in timing of incremental revenue to support a projected $200 billion in GenAI-related capex next year, according to the note.

Oppenheimer sees Microsoft ( MSFT ) regaining "a dominant platform role" like its personal computer-era influence in a larger AI-driven market, with several partners likely to benefit, including Equinix ( EQIX ) , Cloudflare ( NET ) and C3.ai ( AI ) . The brokerage raised its earnings, revenue and capex outlooks for 2025 through 2028, and are now above Wall Street, the firm said.

"Microsoft's ( MSFT ) platform supports on-prem and is the best at data privacy, both key issues for enterprises," the analysts said. "Combined, Microsoft ( MSFT ) has unsurpassed network effects, the true barrier to entry of any technology company."

Oppenheimer increased its price target on the company's stock to $500 from $450, with an outperform rating.

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