Microsoft (NASDAQ: MSFT) is no stranger to success, witnessing a meteoric rise in the past year fueled by a resurgent market and a tech sector revival. With a remarkable 63% surge in its stock value over 12 months, Microsoft has outpaced the S&P 500’s 27% growth. As we step into 2024, Microsoft’s market cap has breached the $3 trillion mark, crowning it as the pinnacle of the global business hierarchy.
The narrative becomes even more captivating when we consider that a significant portion of this growth stems from Microsoft’s early embrace of generative artificial intelligence (AI). Although some investors are hesitant to join this swift ascent, given the perceived volatility of AI-driven stocks, the story demands attention.
The AI Frontier and Potential Growth Trajectories
AI’s impact is undeniable, with major corporations diving headfirst into this realm. While the ultimate extent of AI’s potential remains shrouded in uncertainty, the opportunities for adept firms like Microsoft are immense.
Microsoft’s foray into AI, exemplified by its partnership with OpenAI and the unveiling of the groundbreaking Copilot suite, has been a game-changer. Copilot, deeply integrated into Microsoft Office products, showcases a myriad of capabilities such as email summarization, drafting responses, presentation creation, data analysis, and content generation. The suite has already catalyzed a noticeable surge in user productivity.
Projections are awe-inspiring, with estimates suggesting that the AI segment could become Microsoft’s fastest-growing $10 billion business. Analysts have thrown around numbers ranging from $25 billion to a staggering $100 billion in incremental revenue attributable to generative AI by 2027.
Diversification and the Restored Triumph of Microsoft’s PC Segment
Traditionally, Microsoft’s personal computing division constituted a significant portion of its revenue. However, recent years witnessed a downturn in this segment due to a slump in PC sales.
As global PC market conditions improve, with a 3% uptick in 2023, poised for gradual rejuvenation in 2024 and substantial revival by 2025, the fortunes of Microsoft’s PC business may be on the brink of a renaissance.
Deciphering the Outlook for Microsoft Stock
While Microsoft’s stock was once a no-brainer buy, its exponential growth has inevitably led to a premium valuation. Currently trading at 35 times forward earnings, compared to the S&P 500’s P/E ratio of 28, some may view it as pricey. However, given the company’s growth trajectories, this valuation seems rather justified and reasonable.
With multiple avenues for reaping the benefits of the AI revolution and other growth drivers in play, it appears that the window of opportunity to invest in Microsoft remains open and inviting.
Where to invest $1,000 right now
Unquestionably, Microsoft has etched its name among the elite performers in the market realm. Its journey through the AI landscape and beyond promises a tale of resilience, adaptation, and sustained growth. For investors contemplating entry into the world of Microsoft, the question lingers: Is it truly too late to partake in this remarkable rise?
(Article based on information available as of February 20, 2024)
