| Stock | Price | 52 Week Range | Marketcap | EPS | Dividend Yield | Chart (24H) | Sector | Employees | Last Updated |
|---|---|---|---|---|---|---|---|---|---|
| $505.72 | 3.76T | 13.65 | 0.66% | Technology | 228,000 | 13 hours ago | |||
| $419.17 | 104.48B | 0.71 | 0.00% | Technology | 10,363 | 13 hours ago |
Microsoft (NASDAQ: MSFT) is no stranger to the ebb and flow of the stock market. Recently, the tech giant’s stock has experienced a notable dip, causing a stir among investors and financial analysts alike. Despite the downturn, many experts argue that Microsoft remains a strong long-term investment, with potential for significant appreciation. Understanding the reasons behind the current dip is crucial for making informed investment decisions.
II. Factors Contributing to the Microsoft Stock Sell-Off
A. Tech Sector Woes: AI Spending Raises Eyebrows Among Skeptics
The tech sector has faced increasing scrutiny and bearish sentiment in recent months. Much of this negativity stems from concerns over the massive spending on AI infrastructure. Companies like Microsoft have been heavily investing in AI, but the substantial costs associated with these investments have made some investors wary of the return on investment (ROI). This cautious outlook has contributed to the lower stock prices we are seeing.
B. CrowdStrike Glitch: Ripples Through Microsoft’s Stock Value
Adding fuel to the fire, a recent outage involving CrowdStrike (NASDAQ: CRWD) impacted some Windows-powered PCs, causing temporary disruptions. Although the market largely dismissed this incident as insignificant and short-lived, it nonetheless contributed to the broader sentiment of uncertainty around tech stocks. This outage underscored how interconnected the tech ecosystem is, where a glitch in one area can create ripples through another.
C. Microsoft’s Azure Slightly Misses Target
Microsoft’s recent earnings release didn’t help matters either. While the company posted robust growth in revenue (up 15%) and earnings (up 10%) year-over-year, the market reaction was lukewarm. The focus was on slower-than-anticipated growth in Microsoft’s Azure cloud computing unit, which saw a 29% year-over-year growth compared to a forecasted 30.2%.
Even though the guidance for the upcoming quarter suggested similar growth levels, investor confidence wavered due to perceived delays in reaping immediate benefits from AI investments. This hesitancy contributed to the sell-off, knocking down Microsoft’s stock price from around $465 to $412 per share.
III. Current and Future Outlook for Microsoft
A. Earnings Star: Microsoft’s Strong Metrics Amid Market Woes
Despite the bearish sentiment, Microsoft’s financial performance paints a compelling picture. The recent 15% increase in revenue and a 10% rise in earnings year-over-year show that the company is still on a solid growth trajectory. The figures indicate that Microsoft’s core business remains strong, even as it navigates the choppy waters of tech investment sentiment and temporary operational hiccups.
B. AI Blitz: Microsoft’s Revenues Surge on Emerging Tech Fronts
The future of Microsoft lies in its significant investments in AI and cloud services. As these sectors mature, they are expected to bring considerable long-term benefits. AI, in particular, is seen as a transformative force across various industries. As companies become more reliant on AI-driven solutions for efficiency and innovation, Microsoft stands to gain significantly from these advancements.
Similarly, Microsoft’s cloud services continue to expand, though a tad slower than expected. The Azure cloud computing unit remains a cornerstone of Microsoft’s strategy. The anticipated gains from these investments suggest that Microsoft is well-positioned for future growth.
IV. Long-term Investment Thesis for Microsoft
A. Earnings Goldmine: Why Forecasts Indicate Massive Gains for MSFT
Looking ahead, the forecasts for Microsoft’s earnings are promising. Experts suggest that the company’s earnings per share (EPS) could rise from $9.07 in the previous fiscal year to above $15 by FY 2026, and nearly $20 by FY 2027. These projections indicate that Microsoft is not just maintaining its current performance but is on track to achieve significant earnings growth.
B. Stock Climb Awaits: Predictions Hint At $600 Target for Microsoft
If these earnings growth predictions hold, Microsoft’s stock can potentially reach new heights. Analysts predict that MSFT could hit between $500 to $600 per share by fiscal year 2027, even with slight multiple compressions. These projections are based on the sustained strength in Microsoft’s core operations and the growing impact of its AI and cloud services.
V. Don’t Fear the Pullback
Post-market on July 30, Microsoft released results for the quarter ending June 30, 2024. For the quarter, the company once again reported strong growth. Revenue and earnings were up 15% and 10% respectively, year-over-year.
Despite these robust results, investor sentiment remained tepid. The slower than expected Azure growth took center stage. Forecasts anticipated a 30.2% growth, but the actual figure came in at 29%, leaving some investors disappointed. However, this year-over-year growth is still substantial and should not be dismissed.
Guidance for the next quarter also suggested growth at similar levels. The perceived lack of immediate AI investment payoff has caused some reluctance among investors. Nonetheless, as AI and cloud technology continue to evolve, these investments are likely to yield considerable long-term benefits.
VI. The Verdict: Stay Long and Stay Strong
While current sentiment might have had a short-term impact, the long-term outlook for Microsoft remains optimistic. Channel checks indicate that the adoption of generative AI technology is not slowing down, which bodes well for Microsoft’s future performance. If the company continues to deliver strong results and sentiment towards AI shifts back to bullish, we could see MSFT make a strong recovery and perform exceptionally well into 2024.
With potential earnings growth from $9.07 to above $15 per share by FY 2026, and close to $20 by FY 2027, Microsoft is poised for significant appreciation. Even in the face of slight multiple compressions, these figures could drive MSFT stock to new highs of $500-$600 per share.
VII. Microsoft Analyst Ratios Skyrocket: Overwhelmingly Bullish
| Metric | Value |
|---|---|
| Consensus Rating | Overweight |
| Average Price Target | $333.41 |
| Potential Gain | 14.1% |
| Number of Ratings | 34 |
Summary of Analysts’ Outlook:
Analysts are overwhelmingly bullish on Microsoft, with 26 out of 34 analysts rating the stock as “Buy” or “Overweight”. The average price target of $333.41 implies a potential gain of 14.1% from the current price. Analysts are impressed with Microsoft’s continued growth in cloud computing, artificial intelligence, and gaming segments, as well as its strong financial performance and dividend yield.
VIII. CrowdStrike Set for Gains: Analysts Optimistic Post-Market Worries
| Metric | Value |
|---|---|
| Consensus Rating | Overweight |
| Average Price Target | $243.15 |
| Potential Gain | 14.1% |
| Number of Ratings | 24 |
Summary of Analysts’ Outlook:
Analysts have a bullish outlook on CrowdStrike Holdings Inc., with a consensus rating of Overweight. The average price target of $243.15 suggests a potential gain of 14.1% from the current price. The majority of analysts believe the company’s strong growth prospects, driven by its leadership in the cloud-native endpoint security market, will continue to drive its stock price higher.
Considering this immense potential, staying long on Microsoft appears to be a promising strategy. The company continues to be robust in its core business while making strategic investments in future technologies. Therefore, despite the present volatility, the long-term prospects for MSFT look bright.
Microsoft stock earns a B rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in MSFT and CRWD. The InvestorPlace Research Staff member primarily responsible for this article did not hold any positions in the securities mentioned in this article.