1 AI Stock to Buy Before It Jumps 15%, According to a Certain Wall Street Analyst

Source The Motley Fool

Artificial intelligence (AI) has been a hot trend for investors all year, and as a result, popular AI stocks have been on a tear. Nvidia is up more than 183% so far this year. Palantir Technologies has jumped more than 313%.

Meanwhile, Microsoft (NASDAQ: MSFT) -- which is heavily invested in AI through its stake in ChatGPT's parent, OpenAI -- has risen a poky 14.7%. That doesn't just pale in comparison to other AI stocks, it's a worse year-to-date return than the S&P 500, which is up 26.8%.

However, one Wall Street analyst thinks Microsoft still has plenty of upside, and he is expecting big things from the company over the next six months. Here's what he thinks the market's missing.

Says who?

The analyst in question is Citibank's co-head of U.S. software equity research, Tyler Radke, who has been following Microsoft since 2021. During that time, he's gotten to know the company about as well as any outside analyst can.

Last month, Radke had a meeting with Microsoft's investor relations team and the CFOs of several of its business divisions. Afterward, he issued a note reiterating his buy rating and $497 price target on the company's stock, which currently sits at about $430 a share. His target represents a 15% upside to the share price.

More importantly, Radke expects the company's growth numbers to improve during the first six months of 2025. If he's correct, that means there's only a brief window for investors to pick up shares before the market sees the improvement and bids up shares.

Why he might be right

Radke was impressed with Microsoft's focus on cutting costs and improving the efficiency of its operations, especially in the AI space, where the costs of ramping up have been high.

"The theme of cost optimization/efficiency was common throughout each meeting and gave us confidence the company can continue to maintain strong earnings growth through the AI investment cycle," he wrote in a note to Citibank clients.

In addition to its large investment in OpenAI, Microsoft has spent substantial resources developing its Copilot AI assistant and has now embedded it within its internal and external software, including Microsoft 365. It has also spent time training its staff to utilize Copilot to improve efficiency. Now that the software is deployed, Radke expects productivity at the company to skyrocket.

Boosting productivity, he noted in an interview with Fox Business News, used to be an excuse for layoffs, but now it's "about increasing the productivity of the people you have. You think about some of these developers: now they're 50% more productive using some of these [AI] tools like Microsoft Copilot."

But wait, there's more

The productivity gains and AI monetization may already be bearing fruit in Microsoft's Azure cloud platform. Revenue from Azure grew by 33% year over year in the most recent quarter. The company credited AI for 8% of that expansion, and has said that growth will surge in the first six months of 2025. That's thanks to previous AI-related capital expenditures and increasing capacity.

Radke believes that the high AI capital expenditures have helped to keep a lid on the stock, but that they will start paying off in 2025. He also expects to see "halo effects" from the company's AI efforts.

"The AI demand is also driving 'halo effects' as customers come for AI services but 'stay' for the platform (i.e., core Azure) that tends to be higher margin," he wrote in his note to clients.

Is Microsoft a buy?

Microsoft has been projecting that its AI efforts will start bearing fruit in the form of a revenue growth surge during the first half of 2025, and Radke agrees. Given how much the stock has underperformed its AI peers -- and especially the broader market -- this year, such a surge would likely propel shares higher, rewarding investors who buy in now.

At about 13 times sales, the company's valuation looks attractive relative to its peers, but somewhat expensive compared to its historical average, so investors may want to buy in gradually. That said, the early signs point to Microsoft being a long-term winner in the AI space.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

  • Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $363,671!*
  • Apple: if you invested $1,000 when we doubled down in 2008, you’d have $45,954!*
  • Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $486,533!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of December 2, 2024

Citigroup is an advertising partner of Motley Fool Money. John Bromels has positions in Citigroup, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Gold Price Forecast: XAU/USD declines below $4,050 on USD strength and hawkish Fed comments Gold price (XAU/USD) extends the decline to around $4,030 during the early Asian session on Tuesday. The precious metal edges lower as traders dialed back expectations of a US interest rate cut next month.
Author  FXStreet
Nov 18, Tue
Gold price (XAU/USD) extends the decline to around $4,030 during the early Asian session on Tuesday. The precious metal edges lower as traders dialed back expectations of a US interest rate cut next month.
placeholder
2025 Black Friday is coming! Which stocks may see volatility?Coming on the day right after Thanksgiving in the United States, Back Friday marks the start of the holiday shopping season. Sales data from this shopping frenzy day reflects investor confidence and consumer trends. The National Retail Federation (NRF) predicts that holiday season (Nov and Dec) retail sales in 2025 will likely exceed $1 trillion for the very first time, which represents a year-over-year increase of 3.7 to 4.2 percent. Historic data from the past decade show that the retail sector has generally outperformed the S&P 500 during the weeks before and after Black Friday. The following retailing companies are expected to be big winners:
Author  Insights
Nov 24, Mon
Coming on the day right after Thanksgiving in the United States, Back Friday marks the start of the holiday shopping season. Sales data from this shopping frenzy day reflects investor confidence and consumer trends. The National Retail Federation (NRF) predicts that holiday season (Nov and Dec) retail sales in 2025 will likely exceed $1 trillion for the very first time, which represents a year-over-year increase of 3.7 to 4.2 percent. Historic data from the past decade show that the retail sector has generally outperformed the S&P 500 during the weeks before and after Black Friday. The following retailing companies are expected to be big winners:
placeholder
Bitcoin Bleeds to $86K, But This Key Indicator Screams "The Top Isn't In"Bitcoin’s adjusted Spent Output Profit Ratio (aSOPR) has spent nearly two years coiling below the extremes seen at past bull-market peaks, even as BTC trades around $86,300 and down 9% on the week — a setup that leaves open the possibility that this cycle’s true top may still lie ahead.
Author  Mitrade
Nov 25, Tue
Bitcoin’s adjusted Spent Output Profit Ratio (aSOPR) has spent nearly two years coiling below the extremes seen at past bull-market peaks, even as BTC trades around $86,300 and down 9% on the week — a setup that leaves open the possibility that this cycle’s true top may still lie ahead.
placeholder
Bitcoin Price Rebound Gains Traction with $90K Break in SightBitcoin is trading above $87,000 and its 100-hour SMA after rebounding from $83,500, with a bearish trend line at $88,200 and resistance at $89,000–$90,000 now in focus as BTC either breaks higher toward $91,750–$94,000 or slips back toward $86,700, $85,000 and lower supports.
Author  Mitrade
Yesterday 02: 58
Bitcoin is trading above $87,000 and its 100-hour SMA after rebounding from $83,500, with a bearish trend line at $88,200 and resistance at $89,000–$90,000 now in focus as BTC either breaks higher toward $91,750–$94,000 or slips back toward $86,700, $85,000 and lower supports.
placeholder
Bitcoin Targets $89K Breakout as S&P 500 Nears ATH on Fed Rate Cut HopesBitcoin price action shows signs of a potential short squeeze as it hovers near $88,000, with analysts watching liquidity dynamics that could push it toward $89,000 or retrace to $85,000.
Author  Mitrade
1 hour ago
Bitcoin price action shows signs of a potential short squeeze as it hovers near $88,000, with analysts watching liquidity dynamics that could push it toward $89,000 or retrace to $85,000.
goTop
quote