Microsoft Corp. will drop Q2 24 results on Tuesday, Jan. 30
\nA strong quarter is expected, driven by artificial intelligence operations
\nShares are expensive from a valuation perspective, reflecting future growth<\/p>\n
\u00a0<\/p>\n
Up again so far this week is an American tech firm called Microsoft (MSFT).<\/strong><\/p>\n With a clever artificial fire under the share price, Microsoft has become the world\u2019s most valuable company by market cap, snatching the title away from long-time nemesis Apple.<\/p>\n How has it managed to claw its way back to the top?<\/p>\n While Apple\u2019s been fiddling with blood oxygen measurements in wristwatches, MSFT\u2019s just about burned Rome by established itself as a firestarter in a handful of fast growth fields and in industries like cloud computing, video games, and OFC\u2026 artificial intelligence (AI).<\/p>\n Now, the House of Bill has eclipsed all comers, renewed by its deep focus on generative artificial intelligence (AI), a sector that has garnered increasing investor favour.<\/p>\n Wall Street is bullish on Microsoft, in the same way it\u2019s gone off Apple.<\/p>\n According to a FactSet poll of Wall St analysts, nine out of every 10 currently have either a Buy or Overweight rating on the stock.<\/p>\n The average price target implies a gain of 6.2% over the next year, adding to its advance of circa 60% in 2023.<\/p>\n Wells Fargo has made the most recent tweak to Microsoft\u2019s price target, lifting it to US$435 per share from US$425.<\/p>\n The bank predicts a further uplift the company\u2019s enormous valuation with artificial intelligence playing a key role.<\/p>\n \u201cWe see key AI-related product cycles taking shape as further upside,\u201d the bank noted on Monday.<\/p>\n That was when MSFT\u2019s valuation clocked in at US$2.887 trillion<\/em>, its most ever, while \u2013\u00a0 after peaking at US$3.081tn on December 15 \u2013 Apple\u2019s was worth a relatively humiliating US$2.875t.\u00a0<\/em><\/p>\n Via Google<\/em><\/p>\n \u00a0<\/p>\n Apple is living on borrowed tech, while Microsoft has learned fastest when it comes to using what Nvidia built; the shiny thing in tech, AI.<\/p>\n XM Australia CEO Peter McGuire told Stockhead<\/em> that Microsoft had a seat at the front of the AI revolution, seeing the changes in real-time via its controlling stake in OpenAI, the company behind the ChatGPT model.<\/p>\n Investors increasingly believe that even if the global economy loses steam, demand for AI products will still remain elevated, shielding corporate profits from any macroeconomic weakness.<\/p>\n \u00a0<\/p>\n\n Microsoft has incorporated OpenAI\u2019s technology across its suite of productivity software, a move that helped spark a rebound in its cloud-computing business in the July-September quarter.<\/p>\n AI is now front and centre of MSFT\u2019s own business. It\u2019s transformed its Azure division into the go-to cloud service for AI-curious companies.<\/p>\n And it\u2019s added another one trillion US dollars to its own market cap in the same time.<\/p>\n Already this week, the software giant launched an AI comms tool and rejigged it as a pro-version, consumer-first product and added it to the company\u2019s monthly-rent-a-subscribe-software-forever model, which has proven such a terrific way to bleed end users.<\/p>\n The timing is consummate from a business which knows as much about making money as it does about making computers.<\/p>\n Microsoft (MSFT) unwrapped the new Pro version of its Artificial IntelligenceAI chatbot Microsoft Copilot.<\/p>\n Subscriptions to Microsoft Copilot Pro are reportedly set to start at US$20 per month. Every month.<\/p>\n The Gates machine has gone all out on AI \u2013\u00a0 more so even than Nvidia and Amazon \u2013\u00a0 and has since reaped a thrilling stock price harvest over the past year, showing just how fast the AI season can shift.<\/p>\n Shares in MSFT have locked in a well over 60% climb in the last year, more than tripling the 20% rise in the S&P 500 as AI afficianados recognised its early moves in generative, exemplified by the early $10bn, one-third move to get a piece in OpenAI\u2019s ChatGPT, secured in late 2022.<\/p>\n Today Microsoft\u2019s stake in OpenAI, sits at 49% \u2013 valued at $86 billion \u2013 after a pumping $3 billion into the headline generating firm.<\/p>\n In that time Microsoft went straight into monetising AI, and that\u2019s been under the Copilot brand, which leverages AI to go make its productivity software suite more sweet and productive.<\/p>\n Previously Copilot was selling at US$30 per month.<\/p>\n That can shift as MSFT backs it\u2019s capabilities. Even so, Wall Street analysts have reckoned that at $30 a pop, per month\u2026 Copilot could boost Microsoft\u2019s fiscal 2025 revenue by as much as US$9bn.<\/p>\n \u00a0<\/p>\n Analysts are drawing parallels with the dot.com boom of the 2000\u2019s, when internet companies began to replace consumer and financial firms as the drivers of market movements.<\/p>\n On top of its stake into OpenAI, MSFT has pumped R&D using its treasure vaults of cash, wooing industry partners and broadened its reach through strategic acquisitions like LinkedIn and GitHub.<\/p>\n The mission to swallow up and maximise reams of inhouse data and unleash inhouse AI expertise has paid off.<\/p>\n In the 12 months since Nvidia burst into the US$1trn cap club and joined the most magnificent 7 tech firms, Microsoft has successfully rolled out AI solutions willy-nilly.<\/p>\n Microsoft\u2019s clients are mostly other businesses that are investing in their AI capabilities, not regular consumers that are struggling under the cost of living crisis.<\/p>\n This sense of resilience has helped fuel the stonking rally in Microsoft shares, which reached a new record high during a week of growing uncertainty and doubt around the pace and direction of interest rates worldwide.<\/p>\n \u00a0<\/p>\n Pete McGuire says hype surrounding artificial intelligence has started to translate into a massive earnings boost for Microsoft.<\/p>\n \u201cThat said, the market reaction will depend on whether the actual results are stronger or weaker than markets anticipate, as well as any guidance by management about the future outlook.\u201d<\/p>\n For Q4 2023, The Street expects Microsoft to report earnings per share of US$2.78, which\u2019d be a jump of circa 20% from the same quarter in the previous year. Similarly, revenue is projected to have risen by nearly 16% from last year.<\/p>\n \u201cI think it\u2019s worth highlighting that Microsoft has the kind of strong history of beating earnings estimates which brings to mind the word consistency<\/em>, having done so in all four of the preceding quarters,\u201d McGuire says. \u201cHence, another upside surprise seems like the most likely outcome, which could generate even greater demand for Microsoft shares.\u201d<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n\n \u00a0<\/p>\n On the charts, McGuire says the most important spot to watch on the upside might be the 400.00 psychological region.<\/p>\n \u201cLooking at the chart (above), Microsoft<\/span> shares are already trading at record highs, so on the flipside, in case of a disappointment in earnings that catches optimistic investors off guard, the previous high of 390.00 could come into play to halt any selloff.<\/p>\n \u201cIf sellers manage to pierce below it, the focus would then shift towards the 377.00 zone.\u201d<\/p>\n \u00a0<\/p>\n McGuire says that the major red flag about Microsoft<\/span> shares is how expensive they\u2019ve become from a valuation perspective.<\/p>\n Via Nasdaq<\/em><\/p>\n \u201cThe stock price is currently trading at over 32 times what analysts expect earnings to be this year, which even for Microsoft<\/span> is a stretched valuation.\u201d<\/p>\n\n Pete says that excluding the pandemic years, the last time Microsoft traded at a similar valuation was back in 2002, as the \u2018dot com\u2019 bubble was bursting.<\/p>\n \u201cSo, the market has already priced in much of the future growth prospects, which limits the upside potential for the stock, as the bar has already been set quite high.<\/p>\n \u201cAll told, the future for Microsoft as a company seems bright as the AI revolution might still be in its early stages. That said, the stock\u2019s hefty valuation already reflects this optimism, so the scope for further near-term gains appears somewhat limited.\u201d<\/p>\n \u00a0<\/p>\n <\/span><\/p>\n The post Ascendant in AI and Bigger than Apple: is Microsoft the new Nvidia?<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"An old hand steering tech\u2019s new revolution<\/h2>\n
Boom gate: MSFT enters a new phase<\/h2>\n
More than just a pretty (inter)face<\/h2>\n
MSFT: Technical analysis<\/h2>\n
Record mkt cap = Record Valuation<\/h2>\n
MSFT: 17th January Close of Trade<\/h2>\n