Microsoft’s Recent Stock Performance in a Tech Landscape
While some tech giants like Nvidia (NVDA) and Tesla (TSLA) have been hogging the limelight in 2024, Microsoft (MSFT) appears to be sailing a steadier course. Despite its groundbreaking ventures into artificial intelligence, including investments in OpenAI’s ChatGPT, Microsoft’s share performance seems modest, with a YTD increase of 14.1%, in comparison to the S&P 500 Index and Nasdaq Composite’s returns.
The Buzz Around Microsoft’s Massive Buyback Program
Recently, Microsoft’s board made big moves by ramping up its quarterly dividend by 10% and revealing a hefty $60 billion share buyback initiative. These actions have raised eyebrows among skeptics, especially since competitors are intensifying their focus on AI technologies. Indeed, D.A. Davidson’s downgrade added fuel to the fire. But should investors really be worried about Microsoft’s growth trajectory? Let’s delve deeper.
Fundamentals Reveal a Robust Future
With a monumental market cap of $3.2 trillion, Microsoft stands as one of the most valuable global companies, trailing closely behind Apple (AAPL). Over the last decade, Microsoft has demonstrated remarkable revenue and earnings growth rates, expanding its market cap almost tenfold in the process. The company consistently outperforms with solid quarterly earnings, exceeding Wall Street’s estimates in almost all instances.
In its Q4 2024 report, Microsoft reported revenue of $64.7 billion, a 15.2% increase from the previous year. Noteworthy is the 10% rise in EPS to $2.95, outshining expectations and marking the company’s eighth consecutive earnings beat. Moreover, Microsoft’s cash flows surged to $37.2 billion in Q4, with a comfortable cash balance of $18.3 billion at quarter-end.
The AI Landscape and Promising Prospects
Microsoft’s dominance in the AI realm through initiatives like the OpenAI partnership and substantial investments in AI technologies, like ChatGPT, is undeniable. Azure AI’s impressive 60% customer growth and robust revenues plus the immense potential in long-term AI contracts signal a bright future. Analysts are optimistic, forecasting substantial revenue and EPS growth for Microsoft, surpassing industry averages significantly.
Analysts Hold a Positive Stance
Despite a recent downgrade, analyst sentiment toward MSFT remains overwhelmingly positive, with a majority advocating a “Strong Buy” rating. Notably, Mizuho reaffirmed an “Outperform” rating with a $480 target price, citing Microsoft’s revenue growth opportunities. Out of 38 analysts covering MSFT, 33 rate it a “Strong Buy,” underlining the stock’s bullish outlook and potential for a 17.2% upside from current levels.