Source: PaxForex Premium Analytics Portal, Fundamental Insight
Microsoft's stock has dropped over 11% in the past month due to several factors. The decline began in July with a tech sell-off, triggered by concerns in the chip market and the onset of the earnings season. The situation worsened when Microsoft reported its Q4 2024 results. Despite exceeding expectations in revenue and earnings per share, a shortfall in its cloud division led to a 7% drop in Microsoft's stock price during after-hours trading on July 30, as Wall Street expressed doubts about the company’s future in artificial intelligence (AI). These recent market fluctuations underscore the value of a long-term investment perspective. Despite the recent dip, Microsoft remains a dominant tech force, with its share price increasing by 853% over the past decade. The company excels in several high-growth sectors, including productivity software, cloud computing, gaming, digital advertising, and AI. Some investors worry that Microsoft's recent performance signals that its stock has peaked, making it too late for new investors to achieve significant gains. However, the tech industry is continuously evolving, driven by companies like Microsoft that consistently reinvest in their growth. Here's why Microsoft is still an attractive investment this year. In Q4 2024, Microsoft’s revenue grew 15% year-over-year to $65 billion, surpassing analysts' expectations by $260 million. Earnings per share of $2.95 also beat Wall Street estimates by $0.02, fueled by double-digit revenue growth in its three primary segments. However, the positive earnings were overshadowed by a miss in Microsoft's intelligent cloud segment, which reported revenue of $28.52 billion, falling short of the expected $28.69 billion. Despite this, the segment achieved a 19% year-over-year sales increase, with revenue from Azure and other cloud services jumping 29%. Microsoft’s cloud performance reflects its strong position in AI, with Azure offering various generative features. Although the slight miss in cloud revenue caused concern on Wall Street, the company still holds substantial potential in the AI sector. Increased competition from Amazon Web Services (AWS) and Google Cloud is likely to result in gradual cloud growth for Microsoft. However, the company's strong presence in tech and its diverse business model provide multiple avenues for expansion in AI. In the second quarter of 2024, Microsoft's productivity and business processes segment saw an 11% year-over-year revenue increase, with Office Commercial products rising 13%. This growth followed the introduction of several new AI tools to the Office productivity suite, including Copilot, an AI assistant that enhances efficiency with language generation tools and is available as a $30 monthly add-on to a Microsoft 365 subscription. Besides cloud computing and productivity services, Microsoft’s personal computing business continues to expand, posting a 14% year-over-year sales increase in the latest quarter. This segment offers another opportunity for AI growth in the coming years as Microsoft's technology advances and AI PCs become more prevalent in the market. Microsoft’s diverse business allows it to give segments like cloud computing time to grow in the AI space. Its strong performance in Q4 2024 highlights the reliability of Microsoft's business and its leading role in the tech industry. Microsoft's stock has increased by 21% over the past year, outperforming the S&P 500’s 17% rise. Additionally, its free cash flow has grown steadily by 17% to $74 billion, indicating the company is well-positioned to continue investing in its business and staying competitive. Despite a recent dip in its share price, Microsoft's growth trajectory remains promising. The decrease in its price-to-earnings (P/E) ratio and price-to-sales (P/S) ratio by 11% represents an improvement in the stock’s value. Currently, Microsoft's P/E and P/S ratios are at 35 and 41, respectively. While these figures might not indicate a significant bargain alone, they are below Microsoft's 12-month averages for both metrics, suggesting the stock is a better value now than for most of the past year. With its diversified business model, strong position in tech, and substantial cash reserves, Microsoft continues to be an attractive long-term investment. The company’s solid outlook indicates that it is not too late for investors to achieve significant gains from this tech giant in the future
As long as the price is above 385.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 402.58
- Take Profit 1: 420.00
- Take Profit 2: 435.00
Alternative scenario:
If the level of 385.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 385.00
- Take Profit 1: 375.00
- Take Profit 2: 365.00
