Microsoft is the market's top software stock because OpenAI offerings like ChatGPT will juice profits over the next 5-plus years, Credit Suisse says

• Microsoft is the market's top software stock, thanks to its investment in ChatGPT, Credit Suisse said.
• The tech giant added another $10 billion in its partnership with ChatGPT's parent.
• That could add $40 billion in revenue and $2 in EPS over the next 5-plus years, analysts predicted.

Microsoft is the market's top software stock, thanks to its growing partnership with ChatGPT creator OpenAI, according to Credit Suisse.

"Within US Software, MSFT is our Top Pick," the bank's analysts said in a note last week, pointing to the software giant's recent expansion of its partnership with OpenAI – the parent company of ChatGPT,  the buzzy artificial intelligence bot that can write sophisticated prose and answer a huge range of search queries. 

The expanded partnership spurred a steep rally in Microsoft stock last month, with the company's market capitalization jumping back to $2 trillion. Investors are anticipating higher profits if Microsoft implements ChatGPT's software into its existing services, such as Azure and Bing – and particularly if it beats out competitors like Google in the AI arms race.

Credit Suisse analysts predicted Microsoft could gain $40 billion in revenue and $2 in earnings per share over the next five-plus years.  

The expected gains are largely due to the fast-growing nature of ChatGPT, which has amassed over 100 million users since launching in November of last year. That suggests an even faster growth rate than platforms like TikTok and Instagram, analysts said.

And though commentators have warned that artificial intelligence stocks could be overhyped, Microsoft is likely to benefit from ChatGPT's popularity, analysts said, particularly if it integrates the technology within Office 365 – a "key value driver" for the company in coming years, the note added. 

"We view OpenAI's technology innovations, the progression of generative/conversational AI, and Microsoft's Bing AI as broadly transformative and predominantly a productivity, cost-cutting efficient tool," analysts said. "It is worth highlighting that within the technology industry ~30% of all new code is generated with AI assistance through tools like ChatGPT and GitHub's Copilot, a testament to the value proposition of the technology."

Microsoft poured $10 billion in its investment earlier this year, on top of an existing $1 billion. The expansion has led other analysts to make bullish calls on Microsoft stock, with Wedbush's Dan Ives calling the company as the pack leader in the artificial intelligence race and predicting a big jump in the stock.