Source: PaxForex Premium Analytics Portal, Fundamental Insight
Despite being a colossal $2.5 trillion company, Microsoft continues to exhibit astonishing growth that defies the conventional notion of the "law of large numbers," which suggests that it becomes increasingly challenging to grow as a company expands in size. Microsoft's performance in the first quarter of fiscal year 2024 (ending on September 30) was nothing short of remarkable. But does this solidify Microsoft's status as a truly unstoppable company? Let's delve into it.
While Microsoft is widely recognized for its Office suite, which is installed on virtually every computer, it is swiftly transforming into a major player in artificial intelligence (AI) and cloud computing.
Among its three divisions, the Intelligent Cloud division stands out as the largest, raking in an impressive $24.3 billion in Q1. What's even more remarkable is its growth rate, clocking in at 19%, the fastest among all segments. This combination of being the largest and the fastest-growing division is a compelling one. Within this division lies Azure, Microsoft's cloud computing arm, which has been the driving force behind the company's growth in recent years. Azure achieved an impressive 29% revenue growth, surpassing its primary competitors, Alphabet's Google Cloud and Amazon's AWS.
Given the projected surge in cloud workloads over the next decade, cloud computing plays a pivotal role in Microsoft's future. If Microsoft can secure a substantial share of this growth, it will position itself favorably for the years to come.
Another element of Microsoft's investment thesis is its Copilot product, which can be harnessed by programmers to enhance productivity by up to 55%. Microsoft is also extending the use of this product to everyday applications like Word and Excel, expanding its potential user base significantly. Although the cost of Copilot stands at $30 per user per month, if it can genuinely deliver the productivity gains that Microsoft claims, it will prove to be a worthwhile investment.
If Microsoft can attract a sizable customer base for Copilot, it has the potential to become a significant growth driver for the company. If the product resonates with users, Microsoft could have a lucrative opportunity on its hands.
The fusion of AI and cloud computing positions Microsoft as an exciting investment, and its resources and momentum in these areas are virtually unparalleled. However, the question remains: is it a good investment right now?
Given Microsoft's remarkable performance, it's unsurprising that the stock commands a premium valuation.
However, with a price-to-earnings ratio of 34 times trailing earnings and 31 times forward earnings, it comes with a substantial price tag, particularly when compared to the broader market. The S&P 500, for instance, is trading at 25 times trailing earnings and 18 times forward earnings. This leads to the question: is Microsoft truly worth such a premium?
Taking into account Microsoft's recent impressive performance, and the immense potential of cloud computing and AI, it's evident that the company's future is promising. Finding a company that is growing revenue at a rate of 13% and net income at 27%, at Microsoft's scale, is a rarity. In reality, there are very few, if any, other companies achieving this.
Microsoft represents a unique investment opportunity in the market and can serve as a solid foundation in an investor's portfolio. However, it's important for investors to exercise patience with Microsoft, as Azure and AI are products that will take more than five years to become fully integrated.
So, if you decide to invest in Microsoft, which appears to be a compelling idea, you should be prepared to hold the stock for the long term. Nevertheless, given Microsoft's track record, the journey is likely to be a smooth and rewarding one.
As long as the price is above 340.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 362.85
- Take Profit 1: 370.00
- Take Profit 2: 390.00
Alternative scenario:
If the level of 340.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 340.00
- Take Profit 1: 329.00
- Take Profit 2: 317.00
