Quick – what’s the safest “Magnificent Seven” stock to own right now? If you answered Microsoft (NASDAQ:MSFT) stock, you’re not the only one who feels this way. Investing in Microsoft allows you to participate in the growth of the generative artificial intelligence or gen-AI technology market. At the same time, you don’t have to worry about Microsoft being too richly valued.
Some fearful investors might disagree, especially if they missed out on the Microsoft share-price gains of 2023. Yet, the momentum is clearly on the side of the buyers, not the sellers. So, don’t pay attention to the worry warts, as Microsoft stock fully deserves an “A” grade and a confident recommendation.
Bullish on Gen-AI? Put MSFT Stock on Your Watch List
There’s no denying it at this point. Microsoft made a brilliant move when it made an early and sizable investment in ChatGPT developer OpenAI. This gave Microsoft a leg up in the gen-AI arms race.
Today, Microsoft and OpenAI continue to find interesting ways to deploy AI technology. For example, Microsoft has an AI-powered reaching tutor called Reading Coach. OpenAI is collaborating with Arizona State University to expand the deployment of AI in academia.
There’s data to show that Microsoft’s investment in OpenAI’s technology is paying off. According to research from Bloomberg Intelligence, in 2023’s second quarter, U.S. monthly active users of Microsoft’s Bing search engine “more than doubled year over year to 3.1 million.”
Not only that, but “Overall, users were spending 84% more time on the search engine, the data show.” This is proof positive that Microsoft made the right choice by going all-in on gen-AI technology.
Microsoft Has ‘Defensive Qualities’
Microsoft stock went on a terrific run last year. Yet, a stock can have momentum while also still being reasonably safe to hold for the long term. Indeed, considering Microsoft’s ability to develop and monetize top-tier, AI-infused technology, it’s reasonable to say that the company continues to offer investors a great value.
As BNP Paribas analyst Stefan Slowinski summed it up, Microsoft has “more defensive qualities” among mega-cap technology names. Slowinski cited Microsoft’s valuation, and particularly the company’s price-to-earnings (P/E) ratio, as being one of the lowest of a select group of software standouts.
On both a GAAP and a non-GAAP basis, Microsoft’s forward P/E ratio is around 35x. Go ahead and compare it to other members of the “Magnificent Seven,” and you’ll see that Microsoft’s valuation isn’t outlandish at all.
Slowinski expects that “free cash flow improvements in fiscal year 2025 should mark a shift” from gen-AI investment to gen-AI returns for Microsoft. If that’s a reasonable prediction, then the time to put Microsoft on your watch list would be today, not months or years down the line.
Microsoft Stock: The Best Defense Is a Good Offense
There’s a gen-AI arms race, and Microsoft is going on the offensive with next-gen, AI-embedded products. If you don’t already have significant portfolio exposure to the gen-AI market, it’s not too late to look at Microsoft stock.
Even if you have gen-AI exposure in your portfolio, you can still consider investing in Microsoft. The company has created and defended its economic moat through relentless product innovation. As a result, MSFT stock gets an “A” grade and absolutely deserves your attention.
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.
