Windows maker Microsoft saw its valuation hit a record high of $2.59 trillion on Thursday.

While the company is facing challenges in the UK and US to its planned $69 billion takeover of game publisher Activision Blizzard, the largest tech deal in history, increased market optimism about the prospects of artificial intelligence (AI) has seen the stock skyrocket this year.

Microsoft shares closed at $348.10 per share on Thursday, up 3.2 per cent, while the stock has gained more than 45 per cent in the year to date.

The company has emerged as a leader in AI adoption in software due to its heavy investment in ChatGPT company OpenAI. Microsoft has started rolling out AI upgrades to Azure cloud services and its Bing search engine.

Earlier on Thursday, analysts at JPMorgan raised their price target on Microsoft, with AI again being the driving force behind the increase. In a note to clients, JPMorgan analysts wrote: "We reaffirm our bullish-outlier viewpoint on generative AI and continue to see it driving a resurgence of confidence in key software franchises.”

JP Morgan analyst Mark Murphy maintains Microsoft with a Overweight and raises the price target from $315 to $350.

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