Some investors are starting to worry about the Microsoft (NASDAQ:MSFT) MSFT stock outlook because of worries that big tech stocks are amid an “AI bubble” that is just about ready to burst. Some names boosted by AI growth may have moved up too fast. However, I wouldn’t jump to the conclusion. At least, based on the latest results/news from the company.
Taking a closer look at these factors, there’s a clear takeaway. Enough remains in play for Microsoft shares to sustain their current valuation, and to keep climbing, as the company continues in its efforts to integrate and monetize gen AI functions into its platforms.
MSFT Stock Outlook: Perceived ‘Bubble Trouble’
After taking a breather at the start of 2024, “AI mania” has gotten back into full swing over the past few weeks. Several factors have played a role in this, but one of the larger ones has been the reporting of strong quarterly results/updates to guidance.
A well-received earnings release has for sure been a big reason MSFT keeps climbing higher. As I discussed last week, the company beat on revenue and earnings. Not only that, Microsoft’s management provided guidance updates that made the market even more bullish about the MSFT stock outlook.
However, while it has not become the opinion of a majority of market participants, talk of “bubble trouble” with AI stocks is emerging. It may not be long before a greater number of investors take a similar stance.
MSFT would likely tumble if some of the more bearish market forecasts out there (like investor Jeremy Grantham’s downbeat forecast) play out. Still, don’t expect a modest cooldown in AI stocks to mean the beginning of the end for the Microsoft bull case. Again, much points to shares holding onto/adding to their latest gains.
Cashing the Check
As commentators have put it, 2023 was undoubtedly Microsoft’s “year of AI.” First, the company gained a huge competitive edge against its big tech peers, via its $10 billion investment into OpenAI. This deal gave the company access to the ChatGPT developer’s cutting-edge AI technology.
Then, Microsoft started monetizing this technology, integrating it into platforms like Azure, Bing, and Office 365. Yet while last year was when the tech behemoth pounced on the gen AI opportunity, 2024 may be the year Microsoft “cashes the check.”
What do I mean? For the fiscal year ending June 2024, sell-side forecasts call for Microsoft to report revenue of $244.23 billion, and earnings of $11.69 per share. This represents 15.25% revenue growth, and 20.75% earnings growth, compared to the prior fiscal year ($211.9 billion in revenue, $9.68 per share in earnings).
Consensus for next fiscal year (ending June 2025) may call for slightly lower levels of top line, but based on the top end of forecasts (calling for 21.8% revenue growth and 22.7% earnings growth), further growth acceleration may be in store. You can imagine what this may mean for the MSFT stock outlook.
Bottom Line: It’s Fine to Sell, but I Wouldn’t
The above consensus is likely enough to sustain Microsoft’s valuation. Driving a rise in price that is in tandem with earnings growth. Hence, a further double-digit increase for MSFT over the next twelve months is well within reach.
But if results continue to beat expectations? The impact on the stock’s price performance could be dramatic. That’s not to say Microsoft stock, after surging by nearly 60% over the past twelve months, will gain by another 60% between now and next February.
However, a move to prices north of $500 per share may be very possible. Even a climb to $600 per share could be within reach.
While macro/company-specific events could alter this bull case, for now it remains in effect. As the MSFT stock outlook remains sunny, think twice before heading for the exits.
MSFT stock earns an A rating in Portfolio Grader.
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.
