On Wednesday, Bernstein analysts highlighted the potential benefits for Microsoft and electrical infrastructure companies following the announcement of the Stargate Project, a significant investment initiative aimed at expanding AI infrastructure in the United States. Microsoft, currently valued at $3.26 trillion and showing robust revenue growth of 16.44% in the last twelve months, stands to benefit significantly from this development. According to InvestingPro analysis, Microsoft maintains a “GREAT” financial health score, positioning it well to capitalize on this opportunity. The project, announced at the White House, involves a partnership of technology giants including OpenAI, Oracle, SoftBank (TYO:), and MGX, pledging to invest up to $500 billion over the next four years.
The Stargate Project will commence with the construction of ten 500,000 square-foot data centers in Texas, which will be utilized exclusively by OpenAI. ARM, Microsoft, Nvidia, Oracle, and OpenAI are set to be key technology partners, with OpenAI handling operations and SoftBank overseeing the financial aspects of the project. This investment is expected to double the current data center capacity in the U.S., potentially increasing the country’s total electricity consumption by 5-10% and accelerating annual electricity demand growth to as high as 2.3%.
Every $100 billion in investment could raise the Total (EPA:) Addressable Market (TAM) for electrical contractors by $20 billion, construction equipment by $5 billion, electrical equipment by $5 billion, and equipment rental revenues by $2 billion. Companies like PWR, ETN, and HUBB could see a 3% increase in earnings power relative to 2025 estimates for every $100 billion invested, and potentially a 10-15% increase if the entire $500 billion is deployed. Additionally, OSK, CAT, URI, and DE could experience low single-digit Earnings Per Share (EPS) accretion.
The analysts also noted that the incoming administration’s support for rapid AI development could offset the negative impact on electricity demand from the repeal of the EV tax credit. The scale of investment by a single entity is unprecedented and could significantly benefit electrical infrastructure stocks. With Microsoft’s earnings announcement scheduled for January 29, 2025, investors seeking deeper insights can access comprehensive analysis through InvestingPro, which offers exclusive ProTips and detailed metrics for over 1,400 US stocks.
For Microsoft, the Stargate Project aligns with the company’s strategy to focus on inference rather than building training data centers. Microsoft is expected to benefit from the enhanced AI model training and inferencing capabilities that will drive increased consumption of its Azure cloud services. Trading at a P/E ratio of 35.21, Microsoft’s current market valuation reflects high growth expectations. InvestingPro subscribers can access detailed valuation metrics and 12+ additional ProTips to make more informed investment decisions. The partnership with OpenAI, including the increased use of Azure for training leading models and delivering products and services, is anticipated to further Microsoft’s position in the AI and cloud computing markets.
In other recent news, a $100 billion joint venture in the artificial intelligence sector has been unveiled, involving SoftBank Group Corp., OpenAI, and Oracle Corp (NYSE:). This venture aims to fund AI infrastructure, with an eventual goal to raise funding to at least $500 billion. Initial equity will come from SoftBank, OpenAI, Oracle, and Abu Dhabi state investor MGX, and technology support will be provided by Arm Holdings (NASDAQ:) Plc, Microsoft Corp (NASDAQ:)., and Nvidia Corp . (NASDAQ:), among others.
In terms of financial analysis, Morgan Stanley (NYSE:) has downgraded Microsoft’s stock target to $540 from the previous $548, citing concerns about various financial metrics and strategic partnerships. However, the firm maintains an Overweight rating on Microsoft, indicating a belief in the company’s strong market position and potential for investment.
Jefferies and KeyBanc Capital Markets have also reaffirmed their positive ratings on Microsoft, citing strong AI-led growth potential and consistent performance across the company’s offerings, particularly in the cloud and AI sectors. Evercore ISI has reiterated an Outperform rating, highlighting the potential growth of Azure, Microsoft’s cloud computing service.
These recent developments reflect Microsoft’s ongoing efforts to enhance its offerings and maintain a robust financial performance. The company’s next earnings report is due soon, which investors will be closely watching.
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