The emergence of the generative artificial intelligence growth trend sent Microsoft (NASDAQ:MSFT) shares surging throughout 2023. Thus far in 2024, however, Microsoft stock has gained, yet at a far slower pace. Shares in the software giant are up just 10.6% year-to-date.
In more recent months, MSFT has traded sideways. To many, this may suggest that shares are topping out, and that the company’s AI growth potential is already priced-in.
However, we suggest not jumping to the conclusion that this AI winner is on the verge of entering another period of underperformance compared to the overall market.
Shares could hold steady in the near-term, but over the long-haul, the potential for strong returns remains. Largely, thanks to the following three catalysts currently in motion.
Microsoft Stock and its Key 2024 Catalyst
MSFT may not veer far from between $400 and $425 per share in the immediate term, but it may be a different story later in 2024. It all has to do with Microsoft’s big move into the nascent AI-PC market.
Recently, Microsoft is launching its first AI-PC product: Surface model laptops with built-in AI capabilities. Yes, it may not be until 2025 that AI-enabled PCs begin to take off in popularity. It’s also true that Microsoft is a bit player in the PC hardware business.
However, as the company’s new AI-enabled PCs reported have some advantages over comparable offerings from the likes of Apple (NASDAQ:AAPL), the AI-PC revolution may just be what makes Microsoft a formidable player in this area of the tech space.
Beyond profiting from the sale of its own PC devices, Microsoft stands to benefit greatly from the mass adoption of AI-enabled PCs from third party manufacturers over the next few years, as these PCs will use Microsoft’s CoPilot+ software platform.
Hence, in anticipation of Microsoft’s initial success with AI-PC hardware and software in 2024, and even greater success in 2025 and beyond, investors could resume bidding up MSFT shares.
This Secondary Catalyst Could Drive a More Immediate Rally
Excitement over the AI-PC revolution may be what really moves the needle for Microsoft stock down the road, but alongside this key catalyst is a secondary one that helps to bolster the bull case. This catalyst all has to do with Microsoft’s Azure cloud computing business.
The company may be just starting to monetize its AI technology within its customer-facing segment, but AI integration has already had a major impact on Azure’s fiscal performance. Last quarter, Azure revenue was up 31% because of this factor.
Overall, Intelligent Cloud, the business unit that encompasses Azure and Microsoft’s other cloud segments, reported a 21% year-over-year jump in revenue, to $26.7 billion. Updates to guidance provided alongside earnings indicated that Azure growth will remain at similar levels during the current quarter.
Microsoft next reports fiscal results later next month. If Microsoft crushes it yet again, with the performance of its cloud business, this could help drive a resurgence in enthusiasm for MSFT stock.
Don’t get us wrong. We’re not saying that shares may skyrocket upon such news, but it could produce a moderate move higher, more immediately compared to the aforementioned key catalyst.
This Third Factor May Provide an Additional Lift
Atop the AI-PC and Azure growth catalysts, is another factor that may help provide an additional lift. As Business Insider first reported June 3, the company has plans for a round of layoffs at its Azure unit.
Yes, Azure layoffs sound like bad news for future growth. However, any impact on future growth could be far countered by improvements in profitability for this business.
Furthermore, the fact Microsoft is implementing this layoff strongly suggests that the company, much like its “Mag 7″ peers, remains committed to maximizing efficiency and profitability.
Working in tandem, these three catalysts could help Microsoft deliver stronger earnings growth than currently expected. Forecasts already call for earnings growth of around 15% over the next few years. Growth that goes above and beyond these forecasts will undoubtedly lead to a further strong run for Microsoft stock.
Microsoft stock earns a B 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.
