C3.ai's (AI) strategic alliance signed with Microsoft (MSFT) in October is viewed as a game changer, Morgan Stanley said in a note Tuesday.

Under the 5.5-year agreement, C3.ai will be established as a preferred AI application on Azure, with all C3.ai enterprise AI apps available on the Azure portal. C3.ai solutions can also be ordered on the Azure Marketplace, allowing customers to fulfill their Azure commitments using C3.ai applications.

C3.ai products are orderable on Microsoft paper under the Microsoft enterprise licensing agreement, and Microsoft will subsidize C3.ai pilots and production deployments throughout the term of the agreement, according to the note.

The investment bank said the deal, which has an incentive structure, could be a potential major driver of revenue growth and "perhaps outweighs current uncertainty" on Baker Hughes (BKR).

Morgan Stanley noted investors' concerns on the potential revenue impact on the business should C3.ai's partnership with Baker Hughes which expires in June 2025 is not renewed.

"An encouraging disclosure is that revenue exposure to Baker Hughes has fallen materially in recent years," the firm said.

Morgan Stanley boosted its price target on C3.ai to $32 from $21 and maintained its underweight rating.

The company's shares were down 2.1% in recent trading.

Price: 40.80, Change: -0.88, Percent Change: -2.11