Is It Too Late to Buy Microsoft Stock?
Over the past year, Microsoft (NASDAQ: MSFT) has experienced an extraordinary surge, propelled by a broad market rebound and a significant recovery in the technology sector. The productivity software and cloud computing giant has seen its shares soar by 63%, outpacing the S&P 500’s gains of 27%. Entering 2024, Microsoft’s market capitalization has eclipsed $3 trillion, positioning it as the most valuable company globally at this moment.
This remarkable rise is largely attributed to Microsoft’s early adoption of generative artificial intelligence (AI), a move that has injected volatility but also tremendous potential into its stock performance. For investors who have remained on the sidelines during Microsoft’s stellar run, a looming question persists: Is it too late to invest in Microsoft, considering its current valuation and rapid ascent?
Artificial intelligence’s impact is undeniable, with major companies diving deep into this revolutionary technology. Microsoft is at the forefront, having invested significantly in AI through its partnership with OpenAI, the parent company of ChatGPT. This collaboration has sparked the launch of Copilot, a suite of AI-powered assistants integrated within Microsoft Office products to enhance user productivity. Copilot’s capabilities span across summarizing and drafting email responses in Outlook, generating presentations in PowerPoint, creating pivot tables in Excel, and drafting documents in Word, among other features aimed at various professional fields.
The potential for growth through AI is immense. Microsoft’s CFO, Amy Hood, has described the next-generation AI business as the fastest-growing $10 billion enterprise in the company’s history. Analysts and investors alike are optimistic, with projections suggesting that Copilot could bolster Microsoft’s revenue by up to $25 billion or more. Some even foresee generative AI contributing an additional $100 billion to Microsoft’s revenue by 2027.
Adding to this, Microsoft Azure, the company’s cloud computing division, continues to thrive as the world’s second-largest cloud infrastructure provider. Azure’s advantageous position allows Microsoft to offer cloud-based AI services, further fueling its growth. In the fiscal second quarter of 2024, Azure reported a 30% year-over-year increase, outperforming competitors like Amazon Web Services and Google Cloud.
Though Microsoft’s personal computing segment has experienced challenges due to a decline in PC sales, recent signs of market recovery indicate potential for improvement. As the global PC market starts to pick up, expectations are set for a gradual refresh cycle beginning in 2024, which could revive Microsoft’s personal computing revenues.
Despite its remarkable growth, Microsoft’s stock valuation has raised eyebrows, currently trading at 35 times forward earnings. While this may seem steep in comparison to the broader market, it’s arguably justified given the company’s growth trajectory and the transformative potential of AI. This suggests that Microsoft’s stock might still be a worthy investment, even at its current price.
Considering the myriad ways Microsoft can capitalize on the AI revolution and other growth drivers, the opportunity to invest in Microsoft may still be ripe. The company’s pioneering role in AI, coupled with its robust cloud computing services, positions Microsoft for continued success in the technology landscape.
In conclusion, for those pondering whether it’s too late to invest in Microsoft, the evidence suggests that the company’s journey is far from over. With its strategic investments in AI and cloud computing, Microsoft is well-poised for further growth, making its stock an attractive option for investors looking to tap into the unfolding potential of artificial intelligence and technology at large.
