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Buy Microsoft (MSFT) Stock for These 2 Key Catalysts


  • Microsoft (MSFT) is gaining share in the cloud race, providing MSFT stock with an important, positive catalyst.
  • AI could become a huge, positive catalyst for MSFT stock.
  • The valuation of MSFT stock is attractive.
MSFT stock - Buy Microsoft (MSFT) Stock for These 2 Key Catalysts

Source: Asif Islam / Shutterstock.com

Microsoft (NASDAQ:MSFT) is gaining ground in the battle of the cloud titans, while the company has multiple ways to generate significant amounts of revenue as a result of its forays into artificial intelligence. Additionally, the company’s overall first-quarter results were strong, and it should benefit from a rebound in PC sales in the second half of this year.  Given these points, I believe that MSFT stock is currently worth buying for long-term investors.

MSFT Microsoft $307.91

Microsoft’s Cloud Unit Is Growing Rapidly and Gaining Ground

The cloud sector is becoming a duopoly, as Amazon’s (NASDAQ:AMZN) cloud unit has a 32% share of the sector, while Microsoft’s Azure unit is a close second with 23% of the market.  Meanwhile, the revenue of Microsoft’s core cloud offerings climbed 22% last quarter versus the same period a year earlier, and its sales of cloud services jumped 27% year-over-year.

The data indicates that the company’s cloud businesses are gaining ground on Amazon’s cloud unit, whose sales increased about 16% last quarter.

AI Could Lift MSFT Stock Much Higher

When it comes to “moving the needle” of MSFT stock, AI gives Microsoft “many shots on goal.”

MSFT is already using AI to enhance its search engine, Bing. The technology could make Bing much more popular, enabling the company to significantly increase its share of the huge internet search ad market. MSFT could also emulate C3.ai (NASDAQ:AI) by creating operating systems that enable companies in many different sectors to easily exploit AI, and the software giant could also launch new, enhanced, AI-based customer service tools.

Meanwhile, Microsoft has reported that it is already using AI to improve “the Power Platform of its GitHub unit,” allowing its customers” to carry out many IT tasks more efficiently.” For example, MSFT is using the technology to allow its customers to more easily develop “virtual agents” and apps.

And the company is already incorporating AI into its cloud offerings, its CoPilot developer tool, and LinkedIn. The technology could meaningfully increase the revenue and profits generated by those businesses.

Finally, MSFT “is launching,” in partnership with Nuance, the first fully AI-automated clinical documentation application for healthcare providers. According to Nuance, the product “automatically and securely creates draft clinical notes in seconds.”

It sounds as though the offering will save healthcare providers a great deal of time and money. As a result, I believe that, over the longer term, the offering could meaningfully increase Microsoft’s top and bottom lines, boosting MSFT stock in the process.

Strong Financial Results and a PC Bottoming

MSFT’s top line, excluding currency fluctuations, jumped 10% year-over-year last quarter. That’s an impressive gain for such a large company, especially considering that the PC market has been contracting rapidly. Moreover, Microsoft’s growth appears to have bottomed a year ago, while its operating income surged nearly 10% YOY last quarter.

Meanwhile, multiple analysts and companies are saying that PC sales have already bottomed. If PC sales climb or even if the declines of PC sales decelerate going forward, MSFT stock is likely to jump since the company generates revenue from the sale of all PCs that use the Windows operating system.

“We believe the acute portion of the semiconductor downcycle for the handset, PC and consumer end markets has passed,” Christopher Rolland, an analyst at Susquehanna Financial, wrote in March. Similarly, AMD (NASDAQ:AMD), the huge computer chip maker, predicted that its revenue from Pc makers had bottomed in the first quarter.

Valuation and the Bottom Line on MSFT Stock

The forward price-earnings ratio of MSFT stock is 28 times. Given the company’s huge opportunities in the cloud and AI, I believe that the stock is undervalued at this point. And in light of those positive catalysts, I predict that the shares will likely outperform the market over the longer term.

On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

Article printed from InvestorPlace Media, https://investorplace.com/2023/05/buy-microsoft-msft-stock-for-these-2-key-catalysts/.

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