As the world’s largest company by market cap, Microsoft (NASDAQ:MSFT) stock continues to garner strong analyst support. Analysts foresee a nearly 15% potential upside, with an average price target of $472.39, while the highest target of $550 suggests almost 40% above current levels.
The company exceeded expectations with a 23% surge in Azure revenue, reaching $35.1 billion last quarter.
Its pivotal role in driving the AI revolution, notably supporting OpenAI, underscores its industry leadership. Azure’s sustained growth, marked by a surge in large deals, indicates ongoing momentum.
Microsoft’s growth trajectory and reasonable valuations, combined with its focus on AI and robotics through its partnership with OpenAI, make it an appealing choice for investors.
MSFT Stock is Cheap
Despite its emphasis on AI and healthy FCF margins, MSFT stock remains undervalued. Analysts have put forward a near-term price target of $529 per share on MSFT stock, translating into a 26% increase. Shareholders can generate additional income by shorting OTM put options.
In its nine-month fiscal period ending March 31, Microsoft generated $50.75 billion in FCF, calculated by deducting $30.6 billion capex from $81.353 billion operating cash flow. This FCF, 28.1% of its $180.395 billion revenue, showcases remarkable margins. Analysts predict revenue to rise to $280.1 billion by June 30, 2025, marking a 14.3% increase.
Assuming the company disburses 100% of its FCF in dividends, it could yield a 2.0% dividend, implying a potential market cap of $3.94 trillion, a 26% increase from its current $3.126 billion market cap.
This suggests a potential stock value of $529.46 per share, supported by various analyst projections.
With 94.98% of existing stock ratings as buy, MSFT stock appears undervalued for long-term growth investors seeking exposure to the AI and tech sectors right now.
AI News and Updates
Ahead of the event, there’s anticipation that thinner laptops and AI like Copilot will redefine expectations for Windows PCs. According to Tom Warren’s Notepad newsletter, Microsoft is shifting focus to Qualcomm chips, which is evident in partnerships with major PC manufacturers like Asus and Dell.
Qualcomm’s new Snapdragon X Elite processors, equipped with dedicated NPU hardware, are aimed at rivaling Apple Silicon. Promising superior performance and compatibility, they might reshape the Mac vs. PC narrative to be tested at the May 20 event.
In other news, users can now integrate plugins like Spotify and Adobe for enhanced responses to optimize Microsoft Copilot. A new “Phone” plugin, aiming to bolster Copilot’s Android integration, is rolling out this week.
While Windows 11’s Phone Link app enables mobile-PC connectivity, the Phone plugin still needs to support iPhones.
Microsoft previously prioritized Android devices but now includes iPhones via the Phone Link app. Excluding iPhones from the demo and plugin seems illogical if the technology exists.
Copilot plans to introduce more plugins, with major brands like Adobe and Spotify already on board. There are hints that Microsoft may support iPhone plugins, pending improvements to the current Phone plugin.
Cloud Alternative
Microsoft announced plans to introduce AMD artificial intelligence chips for its cloud services, competing against Nvidia. Further details will be unveiled at its Build developer conference.
It will preview new Cobalt 100 custom processors during the event. These AMD MI300X AI chips will be available via Azure, offering customers an alternative to Nvidia’s dominant H100 GPUs.
Because of data and computation requirements, companies typically cluster multiple GPUs to build AI models or run applications. AMD, targeting $4 billion in AI chip revenue this year, claims its chips can effectively handle large AI models.
Microsoft’s cloud unit offers access to its Maia AI chips alongside Nvidia’s offerings.
Microsoft’s upcoming Cobalt 100 processors promise 40% better performance and are being tested for integration into Teams. They will compete with Amazon’s Graviton CPUs.
MSFT is a Strong Buy
Microsoft’s stock has risen over 10% this year, trailing behind Alphabet and Amazon, up 15% and 22% respectively.
Over 12 months, Microsoft surged 32%, while Amazon jumped 67% and Google rose 47%. These tech giants are vying for AI dominance, investing in firms like OpenAI or restructuring internal teams.
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.
