Is Microsoft Stock a Buy?
Microsoft's (NASDAQ: MSFT) business has exploded over the last decade, with its stock up about 920% since 2014. The company has become a tech behemoth, with growing positions in multiple areas of the industry. Significant cash reserves have helped Microsoft successfully venture into cloud computing, video games, artificial intelligence (AI), consumer products, and more.
The company is active in a diverse range of high-growth markets, making it one of the most attractive investment options right now. In fact, recent boosts to its stock price suggest Microsoft could be on a path to overtake Apple as the world's most valuable company by market cap.
So, here's why Microsoft's stock is a no-brainer buy right now.
On a path to overtake Apple as the world's most valuable company
The gap between Microsoft and Apple's market cap is narrowing, currently separated by about $100 billion. Microsoft is coming out of a stellar growth year, which saw its stock rise 57% throughout 2023, outperforming Apple's 48%. Meanwhile, the Windows company arguably has more growth opportunities in the coming years.
Data by YCharts
Apple has carved out a powerful position in tech with the immense popularity of products like the iPhone, MacBook, and a range of digital services. However, its reliance on consumers makes it vulnerable to macroeconomic headwinds, with revenue dipping 3% year over year in fiscal 2023.
Conversely, Microsoft's priority on commercial sectors like cloud computing and digital productivity services has fortified its business against the worst market declines. In its fiscal 2023, revenue rose 6% year over year to $212 billion, despite the economically challenging period. Growth was mainly driven by a 19% rise in revenue from its cloud platform, Azure, and a 9% increase from its productivity segment.
Moreover, Microsoft emerged as one of the biggest players in AI last year. Heavy investment in the industry saw it achieve a 49% stake in ChatGPT developer OpenAI, granting it access to some of the most advanced AI models.
The company has used OpenAI's tech to bring AI upgrades to many of its services, including Office, Azure, and search engine Bing. These platforms attract billions of users and could help Microsoft become the go-to for anyone looking to integrate AI into their workflow.
Apple is also investing in AI, but it remains unclear how it plans to use the technology to boost earnings over the long term, suggesting Microsoft has a firmer role in the high-growth sector for now.
Microsoft has earned its high valuation
Data by YCharts
This chart compares the forward price-to-earnings ratios (P/E) of some of the most prominent names in tech, with Microsoft's higher figure indicating its stock is one of the more expensive options. However, the company has arguably earned its higher price tag by delivering years of reliable growth, leading positions in multiple tech markets, and significant cash reserves.
In fact, Microsoft surpassed $63 billion in free cash flow last year, suggesting it has the funds to fuel its R&D and overcome potential headwinds.
Additionally, EPS estimates show the company has much to offer new investors over the next two years.
Data by YCharts
This chart shows Microsoft's earnings could hit $15 per share by fiscal 2026. When multiplying that figure by the company's forward P/E of 33, you're given a stock price of $495. Considering Microsoft's current position, these projections would see its stock rise 35% over the next two fiscal years. Comparatively, the Nasdaq Composite and S&P 500 have risen at annual growth rates of 23% and 17% over the last five years, suggesting Microsoft would outperform both indexes.
Alongside the fact it's a business on track to become the world's most valuable company, Microsoft's stock is a no-brainer buy this month and one you won't want to miss.
Should you invest $1,000 in Microsoft right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.
