The market value of Microsoft, which has surpassed $4 trillion, continues to rise! The price increase wave of Microsoft 365 strengthens the "growth narrative."

According to the Zhitong Finance APP, American tech giant Microsoft (MSFT.US) recently announced in a statement that it plans to soon stop offering discounts on Microsoft 365 productivity software subscriptions and other cloud software product lines, including the Office suite, for enterprise purchases. An executive from NexusTek stated that this change could lead to price increases of 10% or more.

Since the announcement, Wall Street analysts have provided estimates on how much additional costs customers will ultimately incur. However, for investors trying to figure out what this all means for Microsoft's financial fundamentals, analysts from the international banking giant UBS indicated that this price increase may have already been factored into the performance guidance recently provided by Microsoft's management. Nonetheless, revenue from new subscription users will undoubtedly be stronger than ever, especially with the expected robust growth of the Microsoft 365 + "Copilot for Microsoft 365" combined subscription scale.

"In our view, it is safe to assume that the impact of the pricing changes has been included in Microsoft's official performance forecasts," analysts from UBS wrote in a research report on Tuesday evening. UBS has given the stock a "Buy" rating, while its 12-month target price expectation for Microsoft is as high as $650. "Considering Microsoft's significant influence in the field of artificial intelligence applications, we still believe that the pricing trend for this stock is entirely reasonable," UBS analysts stated. As of Wednesday's market close, Microsoft's stock price was $505.720.

Microsoft 365 May Support Continued Strong Expansion of Microsoft's Performance

"Large partners have pointed out that Microsoft has also made a series of separate pricing/licensing changes to its on-premises suite. We believe these changes, along with the significant productivity transformation brought by the OpenAI large model exclusively embedded by Microsoft, may accelerate the recent trend of exceptionally strong customer business activities migrating to Azure cloud computing," UBS analysts added in the report.

Microsoft first disclosed this potential price increase on August 12, just two weeks after the software giant provided its forecast for the new fiscal year in its earnings report for the fourth quarter ending June 30; this forecast included annual revenue growth of up to double digits. Following the earnings report, Microsoft's stock price surged over 6%, and the strong performance data and earnings outlook propelled Microsoft's market capitalization to $4 trillion, making it the second company after Nvidia to reach a market cap of $4 trillion, currently only behind Nvidia in total market value.

In a blog post announcing the pricing changes, Microsoft stated: "This update is based on the consistent pricing model already implemented for cloud services like Azure, reflecting our ongoing commitment to achieving greater transparency and consistency in customer purchase prices across all procurement channels."

The latest price changes apply to large companies with sufficient employees, allowing them to enter pricing tiers A, B, C, and D. This change will take effect on November 1 when enterprise organizations sign new services or renew existing user agreements "This move allows us to provide more consistent and transparent pricing, and better assist our customers and partners in making clear, informed, and wise decisions," a Microsoft spokesperson said in a reply email sent to the media.

Jay Cuthrell, product manager at Microsoft's partner NexusTek, stated that customers will see price increases ranging from 6% to 12%, with a general expectation of over 10%. UBS analysts wrote that partners estimate the specific impact to be as low as 3% and as high as 14%.

The growth in seats for Microsoft 365 cloud software products (i.e., the number of licenses purchased by customers for their employees) has been below 10% since 2023. Microsoft is striving to achieve larger revenue per seat by selling the incredibly powerful Copilot AI paid add-on and migrating some users to more expensive subscription plans based on stronger AI capabilities.

Continuing to expand this part of the business is crucial. A significant portion of Microsoft's operating profit, which could reach $128.5 billion in fiscal year 2025, comes from the "Productivity and Business Processes" division, with about 73% of its revenue data coming from the Microsoft 365 commercial products and cloud computing services product line.

Adam Mansfield, practice leader at UpperEdge consulting, stated that most customers are expected to agree to pay Microsoft more to continue using these exclusive applications rather than turning to less popular alternative services. Mansfield noted that they might also reduce purchasing commitments in other areas of Microsoft's business (such as Azure cloud computing infrastructure).

Nathan Taylor, senior vice president at Sourcepass (a small business IT service provider), indicated that as discounts disappear, the company might continue using the software by purchasing it at lower prices through other cloud distributors rather than directly from Microsoft.

Taylor mentioned that so far, these changes from Microsoft have not brought many potential customers to Sourcepass. "This type of updated AI information takes time to spread throughout the industry," he said.

Microsoft's stock price has risen 20% this year, while the Nasdaq 100 index has increased by about 10%, significantly outperforming this tech stock benchmark index.

What exclusive Microsoft software rights do users gain after subscribing to Microsoft 365?

Overall, "Microsoft 365 productivity software" = a set of cloud applications and services packaged in bundles (varying by bundle). The cloud application family that is always included in Microsoft 365 productivity software consists of: Word, Excel, PowerPoint, Outlook (with Exchange Online), OneDrive for Business, SharePoint Online, etc., forming the core productivity suite of Microsoft 365 This is Microsoft's official standard list for M365 "products, applications, and services."

The enterprise version of Microsoft 365 also includes Windows 11 Enterprise and security/compliance features (such as Purview, Defender, Entra ID, Intune/device management, etc., depending on the subscription package). Microsoft has provided a list of "included special subscription applications and services" and a comparison table for Enterprise E3/E5/F3 and the more powerful Business versions (Business Basic/Standard/Premium).

For Microsoft's financial fundamentals, the price increase factors for retained customers of Microsoft 365 may have been factored into the company's performance guidance. However, the new enterprise users attracted by Microsoft's more advanced AI features may continue to grow strongly, potentially driving significant acceleration in new subscription revenue for "Copilot for Microsoft 365."

It is understood that Copilot for Microsoft 365, built on OpenAI's GPT large model, is not included by default and requires a separate purchase of an additional license; while Copilot Chat, a "high-efficiency AI chatbot experience with enterprise data protection," is typically provided for free with eligible Microsoft 365 basic subscriptions. However, its capabilities differ from the paid version of Copilot in terms of Graph integration and deep integration with applications like Word/Excel/PowerPoint/Outlook/Teams.

"Copilot for Microsoft 365" is not included by default in the Microsoft 365 subscription package but is an additional license that can be purchased separately for eligible M365/O365 plans (for example, the enterprise subscription price is generally $30 per user per month, with a monthly billing option available; a qualifying basic subscription plan, such as Business Standard/Premium, E3/E5, etc., is required before purchase).

"Copilot Chat" (a web/lightweight workflow AI chat experience with enterprise data protection) can be "used for free" with eligible M365 subscriptions, but it primarily responds based on "web information," which is not equivalent to the capabilities of "Copilot for Microsoft 365," which is deeply integrated into Word/Excel/PowerPoint/Outlook/Teams and based on Microsoft Graph work content. Generally speaking, Copilot Chat is very suitable for moderate users' general Office Q&A, web search enhancement, lightweight file upload parsing, and entry-level automation processing needs. However, heavy Office users require "Copilot for Microsoft 365," which can automate large and complex tasks