Buy Microsoft as latest investment can help it end Google’s search dominance, D.A. Davidson says

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Microsoft ‘s investment in OpenAI should offer “significant underappreciated upside” for the big technology stock in the months ahead, according to D.A. Davidson. The firm initiated coverage of the tech bellwether with a buy rating and $270 price target, viewing its investment in the research company, which operates ChatGPT, as a potential short-term catalyst for shares that help support its premium valuation. “Longer-term, we believe incorporating ChatGPT capabilities into Bing may provide Microsoft with a once-a-decade opportunity to unseat Google’s Search dominance,” wrote analyst Gil Luria in a note to clients Wednesday. ChatGPT is an artificial intelligence chatbot able to answer questions and write essays . It went viral after its debut in late last year, raising concerns over whether the platform could disrupt Google’s bread-and-butter search business. The “value-creation” opportunities ChatGPT offers both Microsoft’s Bing and Azure products have yet to materialize in the company’s current share price, but should support advertising, cloud and search growth, Luria said. “Furthermore, we believe Google will need to face a major case of innovator’s dilemma in deciding to incorporate generative AI into Search, thus significantly disrupting its current ad selling model,” he wrote. Microsoft suffered in 2022 along with other technology stocks, tumbling nearly 29% as growth stocks took a hit in a rising rate environment. Looking ahead, Luria expects the company’s market dominancy and endurance to help the company weather further uncertainty ahead. The firm’s $270 price target implies nearly 18% upside from Wednesday’s close. “Our price target represents a 50% premium to the market multiple, at the high end of the 5-year historical range, based on our expectation that the upside from OpenAI is not yet reflected in expectations,” he said. — CNBC’s Michael Bloom contributed reporting