Microsoft (NASDAQ:MSFT) stock continues to prove the skeptics and the naysayers wrong, as it cruises on higher. MSFT keeps on climbing, not because of “AI hype,” but because the bull case keeps on getting stronger. It’s been busy since integrating generative AI technology and launching new platforms to capitalize on the tech frontier.
Before you assume Microsoft has maxed out on this opportunity, or that today’s share price fully captures the likely upside from said opportunity, keep the following in mind. Based on these latest developments, the company keeps finding ways to “cash the check,” as we’ve put it previously.
MSFT Stock: The Latest AI Product News
Microsoft started off its AI integration efforts last year, through moves like adding generative AI features to its Bing platform. The possibility of Bing, a distant second behind Alphabet’s (NASDAQ:GOOG,NASDAQ:GOOGL) Google segment in market share, quickly becoming the top dog in search was a popular view among investors.
Confidence in Bing being a “Google killer” has since waned considerably. Despite AI integration, Bing’s market share has barely budged. However, the company has more than made up for this, with its other AI integration/monetization efforts.Even better, these have only started to move the needle, in terms of operating performance.
Down the road, add-on products like Copilot for Microsoft 365 and Copilot for Finance could make a major impact on the company’s future results.
CoPilot for Microsoft 365 alone could by 2026 generate over $10 billion in annual revenue. More recently, the unveiling of another AI-powered product suggests even greater upside from the AI revolution than previously anticipated.
As InvestorPlace’s Rich Duprey recently discussed, Security for CoPilot, an AI-powered cybersecurity service set to launch at the start of next month, is yet another potential multibillion dollar game-changer for the company, and for MSFT stock.
Locking Down Top Talent to Cement its Lead
Getting to the top is one thing. Staying at the top is another. Microsoft leads in AI software, but competitors are ready to invest to catch up.
With this, besides ramping up monetization/product launch efforts, Microsoft is also locking down top top to cement its AI market lead.
Just this week, the company announced that it was hiring Mustafa Suleyman, currently CEO of Inflection AI, and a co-founder of Alphabet’s DeepMind AI division, to run Microsoft AI, a newly-formed business unit.
This unit will encompass Microsoft’s budding Copilot platform, as well as other generative AI software products/services. Alongside Suleyman, another Inflection AI exec, Karén Simonyan, is coming aboard, to serve as Microsoft AI’s Chief Scientist.
This announcement could hinder Alphabet’s AI efforts and strengthen Microsoft’s competitive advantage. This could increase the likelihood that Microsoft continues to exceed growth expectations.
Bottom Line: Still a Buy
Microsoft has only just started turning generative AI technology into steady and significant revenue streams. Sell side consensus currently calls for Microsoft to report 14.6% earnings growth this fiscal year (ending June 2024).
Next fiscal year, earnings growth could come in at 15.3%. In the fiscal year after that, earnings growth could re-accelerate again, coming in at 17.1%.
The top end of sell side forecasts are well above these already impressive consensus estimates. As the company stays in elevated growth mode, don’t be too concerned about MSFT’s valuation (36 times forward earnings) falling because of multiple compression.
Although multiple expansion may or may not occur, simply maintaining this valuation, while growing earnings at or above expectations, stands to produce outstanding returns, even for investors buying in at today’s prices.
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.
