Recently, many investors felt panicky about Microsoft (NASDAQ:MSFT) and dumped their shares, worried the company is spending too much capital on artificial intelligence. That concern is probably overblown, and when all is said and done, Microsoft stock deserves a “B” grade.
The Microsoft share price pulled back sharply because of the market’s general rotation out of technology stocks, but also because of Microsoft’s recently released financial report.
It’s funny, how fearful investors will sometimes focus on one or two issues and overlook a company’s positive data points.
With Microsoft, it’s important to consider the company’s challenges but also stay calm. If you’d like to add to your position, think about taking advantage of the dip-buying opportunity with Microsoft stock.
Microsoft Notches Another Earnings Beat
The Microsoft share price is down substantially from its 52-week high of $468.35. Pullbacks like this don’t happen very often, especially when Microsoft is beating Wall Street’s top-line and bottom-line forecasts.
In the fourth quarter of fiscal 2024, Microsoft grew its revenue by 15% year over year to $64.7 billion. That’s respectable growth, and Microsoft beat the analysts’ consensus estimate of $64.4 billion in quarterly revenue.
Microsoft reported Q2-FY2024 earnings of $2.95 per share. For comparison, the company recorded EPS of $2.69 in the year-earlier quarter.
Also, Microsoft’s EPS came in slightly above Wall Street’s consensus call for earnings of $2.94 per share. This result adds to Microsoft’s excellent track record of quarterly EPS beats.
Don’t Lose Sleep Over Microsoft’s Capital Spending
So, why did Microsoft stock decline in spite of the company’s expectation-beating quarterly results? Again, we’ll reiterate that the market hasn’t been in a positive mood lately about technology stocks.
In other words, jittery investors will look for excuses to panic-sell their Microsoft shares. Microsoft’s Q4-2024 capital expenditure (capex) expanded by more than 55% to $13.9 billion, and apparently, this was a perfect excuse for the sellers.
High capex is a challenge for any company, no doubt. Yet, Microsoft is playing the “long game,” so to speak. The company is spending money now in order to develop robust AI features for Microsoft’s Bing search engine and mobile app, Edge internet browser, Skype messenger and so on.
To put it another way, Microsoft’s increased capex reflects a long-term growth strategy. Sure, it’s important to keep tabs on Microsoft’s spending because you don’t want it to get out of control. That said, it’s not wasted capital, as Microsoft is preparing for the future of AI.
Microsoft Stock: It’s OK to Buy the Dip
Typically, prime dip-buying opportunities occur because some investors cherry-picked reasons to panic. In this instance, the Microsoft share price fell because of generalized tech-stock anxiety, and because Microsoft is spending a lot of capital.
Yet, Microsoft beat Wall Street’s quarterly expectations, and the company’s capital expenditures have a purpose. Microsoft is spending money now in order to succeed in the AI race in the coming quarters.
So, Microsoft stock earns a “B” grade and, now that the price is down from its peak, investors can choose to add to their share positions.
On the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
