Assessing Microsoft (MSFT) Stock Near All Time Highs

Satya Nadella in front of a Microsoft logo
Credit: Lucas Jackson / Reuters -

Shares of Microsoft (MSFT) have gone on an impressive run over the past year, surging more than 60%, compared to a 27% rise in the S&P 500 index. This includes more than 25% gains in six months, which also tops the 14% rise in the S&P 500 index during that span.

The software and cloud giant has since become the world’s most valuable company, surpassing Apple (AAPL). Investors have fallen in love with Microsoft for many reasons, but mainly because of the company's advances in generative artificial intelligence, as well as the billions it has spent as part of its investment in OpenAI’s ChatGPT. Microsoft has begun to monetize AI, and has since launched Copilot, which leverages AI to enhance its productivity software suite.

Copilot is already used by 40% of Fortune 100 companies, and over 37,000 organizations have subscribed to Copilot for Business. But it’s likely that Microsoft's momentum has only just begun. According to Wedbush Securities analyst Dan Ives, an additional $1 trillion of incremental spending will be hitting the software ecosystem over the next decade. "Nvidia (NVDA) and the golden GPUs are the start of the spending wave,” Ives noted.

Outside of Nvidia, Microsoft is better equipped to capitalize off the AI and generative AI boom, given that both ChatGPT and Copilot are poised to be at the center of the enterprise and consumer ecosystem. This fact has already become noticeable in the company’s earnings, where revenues came in at $62 billion, which rose 16% year over year. However, what stood out in the results is that AI provided a 6-point lift in Azure's growth, compared to just a 3-point rise in previous quarter.

This level of acceleration highlights not only the type of strong demand that AI is contributing to Azure, it also signals that corporations are now prioritizing IT investments to position themselves for the opportunities in AI. Microsoft CFO Amy Hood recently said it "absolutely should be the fastest $10 billion business we've ever built” when referencing Generative AI. It remains to be seen whether the AI contribution will increase in the upcoming quarters.

That said, Microsoft's management would not have disclosed that AI provided a 6-point lift in Azure's revenue growth if they didn’t believe that this figure was poised to grow or that this type of revenue contribution was sustainable. In terms of Microsoft 365 Copilot, which is priced at $30 per month, some analysts estimating that at $30 per user per month, Copilot could boost Microsoft’s fiscal 2025 revenue by as much as $9 billion.

These bullish estimates may have some credence, according to Citigroup analyst who reiterated a Buy rating on the stock, citing Microsoft’s GitHub Copilot, among other growth prospects. GitHub Copilot, created by GitHub and OpenAI, will be available at the end of February at a $39 price point. GitHub Copilot is a cloud-based AI tool that allows programmers to write code faster. At a price of $39, it can further accelerate Microsoft’s top and bottom line numbers, particularly on the heels of the company’s Q2 results.

It was also notable that the company said that the main driver of the Q2 AI boost was attributed to inference and not just training workloads. This important context for enterprise AI demand means companies are accelerating their AI adoption more than expected. And with AI expected to fuel Microsoft’s market share among enterprise customers not only cloud adoption but also in its search capabilities, Microsoft remains a must-own stock for any portfolio that values performance and consistent execution.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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