- Microsoft’s (MSFT) stock has fallen this year with the broader stock market, presenting a rare opportunity for investors to buy the dip.
- Despite several headwinds, Microsoft continues to report stellar earnings and strong growth across all of its business lines.
- Microsoft is also in the process of finalizing its $68.7 billion acquisition of video game maker Activision Blizzard.
Down around 16% year-to-date, shares of Microsoft (NASDAQ:MSFT) look to be on sale.
The venerable Seattle-based technology giant that is known for its products, which range from the Windows operating system and Teams conference call platform to the Xbox video game console and Outlook email, has seen its stock battered this year amid a persistent selloff in technology securities. However, the decline in MSFT stock is no reflection on the company, which has continued to post exceptional earnings and growth despite a very difficult environment.
Firing on all Cylinders
At the end of April, Microsoft reported earnings that beat Wall Street expectations across the board. Earnings per share for the company’s fiscal third quarter came in at $2.22 a share, which was above the $2.19 that analysts had expected. Microsoft’s revenue increased 18% from a year earlier to $49.36 billion, which was also above the $49.05 billion expected on Wall Street.
Revenue from Microsoft’s fast growing cloud computing segments posted impressive growth in the quarter, with its Intelligent Cloud segment generating $19.05 billion in revenue during the three months ended Mar. 31, up 26% from a year ago. Revenue from its market leading Azure cloud service also rose 46% in the quarter. Microsoft chief executive officer Satya Nadella said the number of Azure deals worth $100 million or more doubled in the quarter.
While MSFT stock initially jumped more than 5% following its earnings release, the company’s share price has not been able to overcome the ongoing slide in technology securities. With the Nasdaq index down nearly 30% on the year, MSFT stock has been dragged lower despite reporting outstanding financial results that show the company continues to fire on all cylinders.
Activision Blizzard Deal
While Microsoft’s various business segments continue to perform beyond expectations, the company is in the process of trying to close its proposed acquisition of video game developer Activision Blizzard (NASDAQ:ATVI). With a price tag of $68.7 billion, the purchase of Activision Blizzard is the biggest transaction in Microsoft’s 47-year history. Successfully closing the deal is critically important for Microsoft as it will give the company in-house video game development capabilities for its Xbox division. Additionally, it will give Microsoft ownership over popular video game franchises such as Call of Duty and World of Warcraft.
The Activision Blizzard deal isn’t expected to close until next year and still requires regulatory approval. However, at least one prominent investor is betting that the acquisition goes through. Legendary investor Warren Buffett recently revealed that he holds more than 74 million shares of ATVI stock, worth about $5.7 billion. Buffett is betting that Microsoft’s purchase of Activision Blizzard is approved and that he will get to tender his shares at the agreed upon sales price of $95 each. Currently, Activision Blizzard’s stock is trading at $77, with a potential gain of 24% should Microsoft’s acquisition be cleared by regulators.
Beyond the Activision Blizzard deal, Microsoft is also finalizing its purchase of Nuance Communications, which will enable the software developer to expand further into health care, a key long-term goal. Based in Burlington, Massachusetts, Nuance makes speech recognition and artificial intelligence software that is used primarily in health care settings. While the Nuance purchase is just now being finalized, the health care company managed to add $111 million in revenue to Microsoft in its most recent quarter, with more to come once Nuance is fully integrated.
Among 37 analysts that cover MSFT stock, the median price target on the company’s shares is currently $352, implying potential upside of 32.8%.
Grab MSFT Stock
Investors need to ask themselves, “What is wrong with Microsoft?” The answer: nothing.
The software giant is doing great despite strong economic headwinds that include high inflation, rising interest rates, global supply chain problems, war in Europe, and a renewed Covid-19 outbreak in China. None of these issues has slowed down Microsoft, which is in the process of completing the biggest acquisition in the company’s history. For these reasons, investors should take full advantage of the current slump in Microsoft stock and buy shares. These opportunities don’t come along that often. MSFT stock is a buy.
On the date of publication, Joel Baglole held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.