As the spotlight shines brightly on artificial intelligence (AI) in the financial world, tech powerhouse Microsoft (MSFT) stands out as the “Magnificent 7” leader in the AI software realm. Last year, Morgan Stanley (MS) pinpointed Microsoft as the paramount software company positioned to thrive amidst AI’s expanding influence on infrastructure and applications.
With AI stocks like Nvidia (NVDA) experiencing a downturn, analysts at Morgan Stanley recently revised their forecast for Microsoft’s future. The bank’s experts, led by Keith Weiss, upheld an “Overweight” rating for Microsoft shares and elevated the stock’s price target from $465 to $520 – signaling a potential 26% upside.
Accompanying the price hike projection, Morgan Stanley highlighted Microsoft’s ability to rake in up to $120 billion in revenue from generative AI by 2029. Moreover, the analysts foresee Microsoft’s earnings per share (EPS) possibly doubling to $24 by fiscal 2029 from anticipated 2024 levels.
As the countdown to the next quarterly earnings report ticks onward, let’s delve into the varied upside predictions put forth by different analysts concerning Microsoft stock.
Exploring Microsoft Stock
Nestled in Redmond, Washington, Microsoft (MSFT) shines as a global tech titan, flaunting a colossal market cap of $3.1 trillion. Renowned for its dominance in the PC software arena and an extensive suite of cloud-based offerings via Azure, Microsoft reigns supreme in operating systems and productivity software.
Over the past year, Microsoft shares have surged by 42.6%, outpacing the S&P 500 Index’s 21% return within the same timeframe.
Microsoft boasts a track record of rewarding shareholders with dividends for 19 consecutive years. In its most recent move, Microsoft announced a quarterly dividend of $0.75 per share, payable to shareholders on June 13, translating to an annualized $3.00 dividend per share and a dividend yield of 0.72%.
Microsoft’s stock is trading at a forward earnings ratio of 36.34x, lower than its cloud software competitor Salesforce (CRM) which trades at 39.5x.
Microsoft’s Q2 Earnings Outshine Expectations
On January 30, Microsoft reported fiscal Q2 earnings of $21.9 billion, equivalent to $2.93 per share, surpassing Wall Street forecasts by 6.2%. Its revenue surged by 18% year over year to hit $62 billion, slightly exceeding analysts’ expectations. During the same quarter, Microsoft finalized its colossal $68 billion acquisition of video game giant, Activision Blizzard – marking its largest deal to date.
For the ongoing quarter, Microsoft anticipates revenue growth in productivity and business processes ranging between 10% and 12%, intelligent cloud revenue up between 18% and 19%, and personal computing to climb between 11% and 14%. These projections are buoyed by robust performances in various segments including Azure and Office 365. Microsoft is slated to disclose its fiscal Q3 earnings next Thursday, April 25.
Analysts foresee Microsoft’s earnings reaching $11.61 per share in fiscal 2024, marking an 18.4% annual increase, with an additional 13.3% uptick anticipated in fiscal 2025 to hit $13.15 per share.
Analysts’ Expectations for Microsoft Stock
Microsoft stock garners a consensus “Strong Buy” rating on Wall Street. Out of 37 analysts monitoring MSFT, 33 label it as a “Strong Buy,” three suggest a “Moderate Buy,” and one advises to “Hold.”
The average analyst price target of $455.63 indicates a more reserved outlook compared to Morgan Stanley’s optimism, pointing to a modest potential upside of around 10.7% from present levels. Meanwhile, the highest price target on the Street, set at $600 by Truist Securities, suggests a substantial 45.7% long-term gain.