Microsoft (NASDAQ:MSFT) has emerged as a top tech stock to buy in 2024. The company continues to capitalize on two major trends – Azure serves as a premier AI infrastructure platform, while the company pioneers AI integration across tools like Copilot and applications such as Nuance Dax in healthcare. This will have important implications for MSFT stock holders in the future.
With a 56% year-to-date surge and a 272% gain over the past five years, there’s a reason why Microsoft continues to be among the most valuable companies in the world. Beyond its 0.80% dividend yield, the company’s strength lies in versatility, high profit margins, and robust growth. Microsoft Azure, a leading cloud computing application, fuels a 21% year-over-year increase in “server products and cloud services” revenue.
Analysts foresee widespread enterprise adoption, with a $450 price target, emphasizing Microsoft’s leadership in AI and cybersecurity amid escalating ransomware threats and new SEC disclosure rules. Overall, Microsoft records a 13% year-over-year revenue growth and a notable 27% year-over-year increase in net income.
The Bull Case
In 2019, Microsoft invested $1 billion in OpenAI, later increasing its stake to 49%. This partnership provided exclusive access to advanced AI technology, leading to the integration of AI features across Microsoft’s products. Over the past year, Azure, Bing, and Office received significant AI enhancements.
Microsoft has capitalized on AI through moves like Copilot, a $30 add-on for Microsoft 365. With a strong foothold in productivity and cloud markets, it’s poised for substantial AI-driven revenue growth.
In Q1 FY24, it exceeded expectations with 13% year-over-year revenue growth, reaching over $63 billion in free cash flow. Positioned for promising growth, Microsoft has ample resources for further AI investments and expansion.
Microsoft is Continously Growing
Microsoft demonstrated robust profitability, achieving a net income of $16.6 billion in fiscal year 2018 and $73.4 billion in fiscal year 2023, boasting a notable CAGR of 34.6%. In comparison, Alphabet and Apple recorded net income CAGRs of 36.4% and 10.3%, respectively, over the same five-year period.
Despite Microsoft’s $69 billion acquisition of Activision Blizzard, the company maintains a strong balance sheet with $72.4 billion in net cash, ensuring financial stability and flexibility for future growth and shareholder returns without the burden of net debt.
Microsoft strategically invested in gaming and artificial intelligence for future growth. The acquisition of Activision Blizzard enhances its gaming portfolio and complements the Xbox console. Microsoft’s $13 billion investment in OpenAI, particularly its ChatGPT product, has propelled its valuation to an estimated $100 billion or higher by late December.
Industry experts hail ChatGPT as a game-changer, and OpenAI reportedly generates annual revenue of $1.3 billion, marking a 30% increase since the summer. This strategic positioning contributes to Microsoft trading at a higher-than-average valuation.
Buy MSFT Stock Now
Microsoft is a stalwart in index funds, boasting over 50% year-to-date gains and a robust 272% surge in the past five years. Continuously outperforming, its substantial investment in OpenAI positions it to capitalize on the AI surge. With efforts to diversify its AI portfolio with smaller models, Microsoft remains a solid choice.
Cashing in on current trends, Microsoft pursued a greater market share in AI and cloud computing, evident in its recent quarterly results. With a revenue of $56.5 billion, a 27% year-over-year increase in net income, and a 0.80% dividend yield, MSFT stock emerges as a top long-term choice for 2024.
Positioned for significant growth beyond 2023, Microsoft, boasting a strong performance over the past decade, aims to reach $500 billion in revenue by 2030, a plausible feat considering its historical trajectory.
On the date of publication, Chris MacDonald did not have (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.
