Source: PaxForex Premium Analytics Portal, Fundamental Insight
Microsoft has witnessed a remarkable surge in its business over the past decade, with its stock soaring by approximately 920% since 2014. Evolving into a tech giant, Microsoft has strategically expanded its presence across various sectors, including cloud computing, video games, artificial intelligence (AI), and consumer products, leveraging its substantial cash reserves.
Engaged in a diverse array of high-growth markets, Microsoft emerges as an exceptionally enticing investment opportunity. Recent upticks in its stock price even hint at the possibility of Microsoft surpassing Apple as the world's most valuable company by market capitalization.
Considering these factors, Microsoft's stock presents itself as a compelling and straightforward buy at this juncture.
The gap between Microsoft and Apple's market capitalization is gradually narrowing, currently standing at around $100 billion. Microsoft has recently experienced a stellar growth year, with its stock surging by 57% throughout 2023, outpacing Apple's 48%. Notably, Microsoft appears to have more growth opportunities on the horizon.
While Apple has established a dominant position in the tech industry with the widespread popularity of products like the iPhone and MacBook, as well as a range of digital services, its consumer-focused approach exposes it to potential macroeconomic challenges. In fiscal 2023, Apple faced a 3% year-over-year decline in revenue.
In contrast, Microsoft's strategic focus on commercial sectors such as cloud computing and digital productivity services has provided resilience against market downturns. In fiscal 2023, the company reported a 6% year-over-year increase in revenue to $212 billion, driven by a 19% surge in revenue from its cloud platform, Azure, and a 9% rise in its productivity segment.
Furthermore, Microsoft solidified its position as a major player in artificial intelligence (AI) by acquiring a 49% stake in ChatGPT developer OpenAI. This investment has enabled Microsoft to integrate advanced AI models into platforms like Office, Azure, and Bing, attracting billions of users. While Apple is also investing in AI, Microsoft's clearer strategy suggests a stronger foothold in the high-growth AI sector for the time being.
Comparing the forward price-to-earnings ratios (P/E) of leading tech companies, we can see that Microsoft has a relatively higher figure, indicating that its stock is positioned as one of the more expensive options. However, Microsoft's premium valuation is arguably justified by its consistent growth, dominant positions across various tech markets, and substantial cash reserves.
Having exceeded $63 billion in free cash flow last year, Microsoft demonstrates the financial strength to support research and development initiatives and navigate potential challenges effectively. Moreover, earnings per share (EPS) estimates suggest promising prospects for new investors in the next two years.
According to projections, Microsoft's earnings could reach $15 per share by fiscal 2026. Applying the company's forward P/E of 33 to this estimate implies a stock price of $495. These forecasts indicate a potential 35% rise in Microsoft's stock over the next two fiscal years. In comparison, the Nasdaq Composite and S&P 500 have exhibited annual growth rates of 23% and 17% over the last five years, positioning Microsoft to outperform both indexes.
Considering its trajectory toward becoming the world's most valuable company, Microsoft's stock emerges as a compelling and undeniable investment this month, presenting an opportunity that investors wouldn't want to overlook.
As long as the price is above 366.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 381.99
- Take Profit 1: 390.00
- Take Profit 2: 400.00
Alternative scenario:
If the level of 366.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 366.00
- Take Profit 1: 360.00
- Take Profit 2: 350.00
