Microsoft (MSFT) investors, take note — Aug. 1 could mark a major turning point in the AI arms race. According to recent reports, OpenAI is expected to unveil its next-generation flagship model, GPT-5, as early as August, making it worthwhile for investors to tune in at the start of the month. Given Microsoft’s multibillion-dollar partnership with OpenAI and its deep integration of GPT technology across its offerings, this potential launch is more than just a milestone for AI — it could be a catalyst for MSFT stock.

In this article, we’ll explore what GPT-5’s launch could mean for Microsoft and how the company is uniquely positioned to capitalize on the breakthrough. With that, let’s take a closer look!

Microsoft (MSFT) is a dominant force in the technology sector, boasting a diverse portfolio spanning software, cloud computing, AI, gaming, and hardware. Notably, the company is among the pioneers targeting the AI market through its partnership and substantial investments in OpenAI. MSFT’s market cap currently stands at $3.82 trillion, ranking it as the world’s second most valuable publicly traded company.

Shares of the tech giant have rallied 21.4% on a year-to-date basis. MSFT stock has been trending upward since early April, initially driven by a pause in U.S. reciprocal tariffs and later getting a significant boost from its upbeat FQ3 earnings report. The stock’s recent gains were supported by broader market strength, fueled by a solid start to the Q2 earnings season, as well as several U.S. trade deals and optimism for more to come.

Last Thursday, The Verge reported that OpenAI, backed by Microsoft, is expected to launch its newest flagship model, GPT-5, as early as next month. Although no exact release date has been disclosed, the report noted that the company is still targeting a summer launch, and all signs suggest it’s on schedule. GPT-5 is expected to mark a major advancement in the chatbot’s intelligence and capabilities.

GPT-5 is expected to combine the capabilities of several of OpenAI’s earlier models, according to the report. The new model will feature capabilities such as memory, reasoning, vision, and task execution. The goal is to develop a unified, powerful AI system capable of handling a broad array of tasks, from writing and coding to data analysis, customer service, tutoring, and beyond. Alongside the full version of GPT-5, OpenAI also intends to launch smaller versions called GPT-5 Mini and GPT-5 Nano.

Talks about GPT-5’s launch surfaced just weeks after Elon Musk’s xAI introduced Grok 4, its newest AI model aimed at competing with ChatGPT and Google’s Gemini. With that, the release of GPT-5 could significantly enhance ChatGPT’s capabilities and help OpenAI maintain its competitive edge. Moreover, this could be another win for Microsoft, which invested $10 billion in OpenAI in 2023, building on its earlier investments in 2019 and 2021. The investment grants Microsoft a significant equity stake in OpenAI’s for-profit arm, as well as exclusive access to its APIs and models on Azure, revenue-sharing agreements, and rights to OpenAI’s intellectual property through 2030.

The partnership has proven highly beneficial for Microsoft, allowing it to offer OpenAI’s technologies to its customers. In fiscal 2024, Microsoft’s Intelligent Cloud segment, which includes its AI cloud services, contributed $105 billion to the company’s total revenue of $245 billion.

Meanwhile, a recent leak revealed that Microsoft is already testing GPT-5 options within its Copilot interface, indicating that Copilot may receive access to GPT-5 alongside ChatGPT once the model is officially announced. The Copilot app and website feature a hidden chat mode called “Smart,” which hints at the use of GPT-5 to generate responses, according to TestingCatalog.com. The new mode is described as enabling Copilot to “think deeply or quickly based on the task.” This new Smart mode also indicates that GPT-5 will combine both reasoning and non-reasoning capabilities, a development OpenAI CEO Sam Altman has previously hinted was in progress.

Microsoft positions Copilot as the most user-friendly generative AI assistant, featuring an intuitive interface and emphasizing productivity-focused workflows and experiences. With that, integrating GPT-5 into Copilot would further reinforce Microsoft’s position in delivering seamless AI-powered productivity across its ecosystem.

Putting it all together, Microsoft’s partnership with OpenAI supports its competitiveness in cloud services and its productivity and ERP software segments, thereby reinforcing its growth outlook.

Investors have another key catalyst to watch ahead of the potential GPT-5 release next month. Microsoft is set to report its fiscal fourth-quarter earnings after the closing bell on Wednesday, July 30. With that, let’s recall management’s guidance for the quarter, take a look at analyst expectations, and highlight the key points to watch.

Analysts anticipate that the company will deliver double-digit growth in both revenue and earnings. The tech giant is expected to report fiscal fourth-quarter EPS of $3.38, a 14.46% year-over-year increase, with revenue projected at $73.81 billion, up 14.03% year-over-year. Notably, in the past 90 days, Microsoft has received 27 upward EPS revisions and just five downward ones for FQ4, along with 31 upward revenue revisions and only one downgrade, indicating strengthening fundamental momentum.

Management has projected Productivity & Business Processes revenue to range between $32.05 billion and $32.35 billion in FQ4, representing 11%-12% growth in constant currency. Also, Intelligent Cloud revenue is expected to range from $28.75 billion to $29.05 billion, up 20%-22% year-over-year in constant currency. In addition, growth in More Personal Computing revenue is expected to be limited by a moderate decline in Windows OEM and Devices due to continued weak PC demand, though it will be supported by solid growth in Search and News Advertising, as well as Gaming.

With that, the primary focus will be on the company’s Azure cloud computing infrastructure business. In FQ3, Microsoft posted Azure revenue growth of 35% year-over-year in constant currency, beating analysts’ expectations of 31% growth. For FQ4, Microsoft projected Azure revenue growth of 34% to 35% in constant currency. In addition, the company mentioned that its cloud AI services have been limited by supply constraints.

Investors will also be paying close attention to the company’s commentary on the outlook for AI and Copilot. Other key areas of focus in the earnings report include the company’s capital spending plans and its relationship with AI partner OpenAI. In April, CFO Amy Hood stated that capital expenditures are projected to increase this fiscal year, though at a slower pace compared to fiscal 2025.

Meanwhile, Wedbush analysts, who have Microsoft on their “Best Ideas List,” boosted their price target on the stock to $600 last week. Wedbush stated that the company “is just hitting its next phase of monetization on the AI front,” driven by the growing adoption of Copilot and the Azure cloud-computing platform. Multiple other Wall Street analysts are also strongly bullish on the software giant ahead of its upcoming earnings report.

Microsoft stock has a consensus “Strong Buy” rating. Of the 46 analysts covering the stock, 38 recommend a “Strong Buy,” five suggest a “Moderate Buy,” and the remaining three advise holding. The mean price target for MSFT stock stands at $553.57, which is just 7.8% above Friday’s closing price.

On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com