Will Microsoft Reach $1000? EPS Estimate Method – Spaxton School

Microsoft Stock Forecast 2024 is $384

Microsoft Stock Price Target for next 12 months is $428.4

Microsoft Stock Forecast: Latest MSFT Price

Article Coverage: Microsoft Performance Summary, Analyst’s forecast for next 12 months, Aggregated Forecast 2023-27, Will Microsoft reach $300? Bull Case vs Bear Case

Microsoft Stock Performance in the Last 12 Months

Microsoft Price Prediction: Microsoft has been trading uptrend from the last few months. Microsoft stock showing strong bullish momentum for the future.

Microsoft has been trading above $400. Currently it was trading at $409 and likely to cross more than $450 in the next few months.

Latest Microsoft (MSFT) Stock News

• Microsoft has quadrupled its investment in infrastructure in Spain, marking a significant commitment to the country’s digital transformation efforts. This move aligns with Microsoft’s broader strategy to support digitalization globally, leveraging cloud computing and other technologies to drive economic growth and innovation.
• Intel has launched a new foundry business, Intel Foundry, dedicated to clients extensively working with AI, with Microsoft as a major client for producing chips and hardware for AI data centers.
• Microsoft’s Airband Initiative brings internet access to rural Colombian cocoa farmers, empowering them with essential tools, training, and fair pricing opportunities for their products. This initiative has contributed to transforming the lives of these farmers, providing them with new opportunities for growth and economic stability.

Read about Microsoft Stock Split

Microsoft Stock Price Target for the Next 12 Months

Microsoft Stock Price Prediction 2024-2027 (Aggregated)

• Microsoft Stock Price Prediction 2023 is $402
• Microsoft Stock Price Prediction 2024 is $450
• Microsoft Stock Price Prediction 2025 is $508
• Microsoft Stock Price Prediction 2026 is $566
• Microsoft Stock Price Prediction 2027 is $615

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Microsoft Investor Summit (Highlights)

During Microsoft’s annual shareholder meeting on December 7th, 2023, the company celebrated a year of notable accomplishments across cloud computing, gaming, and productivity, terming it a standout year.

However, the spotlight also fell on the ongoing concerns surrounding Microsoft’s affiliation with OpenAI. Shareholders voiced apprehensions regarding potential risks linked to large language models (LLMs) like ChatGPT.

Microsoft acknowledged these worries and emphasized its steadfast dedication to responsible AI advancement, underscoring the ethical principles and protective measures in place. Shareholders particularly emphasized concerns about potential hazards associated with LLMs, citing worries about misinformation, bias, and possible misuse. Satya Nadella, Microsoft’s CEO, acknowledged these concerns, affirming the company’s commitment to responsible AI development.

He outlined Microsoft’s AI principles, prioritizing fairness, accountability, transparency, security, privacy, and inclusivity. Additionally, he spotlighted the measures enacted to alleviate risks tied to LLMs, encompassing content moderation, safety research, and user education.

Microsoft First Quarter FY24 Earnings

• Revenue: $56.5 billion, up 13%
• Operating income: $26.9 billion, up 25%
• Net income: $22.3 billion, up 27%
• Diluted earnings per share: $2.99, up 27%
• Productivity and Business Processes:
  • Office commercial products and cloud services revenue increased by 15%.
  • Office consumer products and cloud services revenue increased by 3%.
  • LinkedIn revenue increased by 8%.
  • Dynamics products and cloud services revenue increased by 22%.
• Intelligent Cloud:
  • Server products and cloud services revenue increased by 21%.
  • Azure and other cloud services revenue grew by 29%.
• More personal computing:
  • Windows revenue increased 5%.
  • Device revenue decreased by 22%.
  • Xbox content and services revenue increased by 13%.
  • Search and news advertising revenue (excluding acquisition costs) increased 10%.
• Microsoft also returned $9.1 billion to shareholders through share repurchases and dividends in the first quarter of fiscal year 2024.

Microsoft Stock Fundamental Analysis

Profitability

• Earnings Performance: MSFT displayed positive earnings and a commendable cash flow from operations in the past year.
• Return Metrics: With a Return On Assets (ROA) of 17.29%, Return On Equity (ROE) at 34.93%, and a superior Return On Invested Capital (ROIC) of 23.01%, MSFT shows robust profitability.
• Long-term ROIC: MSFT’s average ROIC over the past 3 years is notably higher than the industry average of 10.53%.

Margins

• Profitability Margins: MSFT boasts a 35.31% Profit Margin, coupled with an impressive Operating Margin of 43.55%, surpassing industry standards.
• Gross Margin: MSFT maintains a strong Gross Margin of 69.44%.

Solvency

• Financial Health: An Altman-Z score of 9.17 denotes MSFT’s strong financial health, indicating minimal bankruptcy risk currently.
• Debt Metrics: MSFT holds a Debt to FCF ratio of 1.42 and a Debt/Equity ratio of 0.38, showcasing a manageable debt structure.

Liquidity

• Current and Quick Ratios: With a Current Ratio of 1.66 and a Quick Ratio of 1.64, MSFT exhibits a comfortable position to meet short-term obligations.

Growth

• Earnings and Revenue Growth: MSFT’s Earnings Per Share (EPS) grew by 12.61% in the past year and has shown an average annual growth of 20.38%. Revenue growth stood at 7.50% in the last year and averaged 13.94% annually over previous years.

Valuation

• Price/Earnings Ratio: MSFT’s Price/Earnings ratio at 35.38 indicates a relatively expensive valuation compared to the S&P500 average of 24.77.

Dividend

• Dividend Metrics: MSFT’s dividend return of 0.83% may seem low, but it outperforms 91.40% of its industry peers. Its annual dividend growth rate of 10.00% suggests a positive trajectory.

Future Outlook

• Projected Growth: Forecasts estimate an 11.48% average growth in EPS and a 12.29% average growth in revenue over the coming years, reflecting promising prospects.

This comprehensive analysis showcases MSFT’s strong financial standing, consistent growth, and positive outlook, albeit with a valuation considered slightly expensive.

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Microsoft Stock Forecast Today, Tomorrow and Week

UTC: Feb 22nd, 2024 06:05 PM

• Microsoft Stock Price Prediction in the next 24 hours is between $401 and $416
• Microsoft Stock Price Prediction this week is between $347 and $446

Microsoft Stock Forecast 2024: Is Microsoft a Good Investment?

Reasons to Invest In Microsoft Stock

One of the FAAMG stocks, Microsoft has been a good investment. FAAMG is an abbreviation for five top-performing tech stocks in the market, namely, Meta (formerly Facebook), Amazon, Apple, Microsoft, and Alphabet’s Google. Here are the reasons to invest in Microsoft stock:

Strong financials: Microsoft has maintained strong financials. The market cap of Microsoft has been either over $2T or close to it. It is one of the largest companies in the world and has shown consistent revenue growth and high-profit margins.

Strong leadership: Microsoft has a strong leadership team. The company is currently led by CEO Satya Nadella, who has been credited with turning the company around and leading it through a successful transition to the cloud.

Diversified revenue streams: Microsoft has a diversified business model, with revenue coming from a variety of sources. The latest partnership with ChatGPT is likely to open up new revenue sources for Microsoft in the future. This diversification makes the company less reliant on any single product or service, which can reduce its exposure to risk.

Cloud computing growth: Microsoft has been investing heavily in its cloud computing business, which includes its Azure platform, the biggest rival of Amazon’s AWS. This segment of the business has seen strong growth in recent years and is expected to continue growing as more companies move their operations to the cloud.

Impact of BingGPT

Despite being the major operating system provider, Microsoft has failed to compete with Google when it comes to Web search. However, Microsoft’s recent ChatGPT bet could change things forever.

Microsoft recently launched a new version of Bing which comes with an integrated AI platform, ChatGPT. This is the biggest bet of Microsoft to compete with Google.

However, how this will affect the search industry is for time to decide. If Microsoft is able to increase its acceptance in the search industry, this will directly help the MSFT stock price surge.

Reasons to Not Invest In Microsoft Stock

Competition: Microsoft is now in multiple businesses but it faces intense competition in many of its key businesses. Apple’s macOS is its Windows competitor, in cloud computing, it is competing against Amazon, and its Gaming console Xbox competes with Sony’s Play Station. This competition could lead to pricing pressure and could make it more difficult for the company to maintain its market share and profitability.

Dependence on key products: Microsoft has diversified its business but for a major part of its revenue it relies on key products like Windows and Office. If demand for these products were to decline, it could have a significant impact on the company’s financial performance.

Regulatory risks: As a large and influential tech company, Microsoft could be subject to increased regulatory scrutiny in the future. This could result in fines or other penalties and could impact the company’s financial performance.

Will Microsoft Reach $300 or Will Microsoft Stock Go Up?

Bull Case

• The expectation of stellar growth from Azure- Azure is the cloud computing wing of Microsoft which has seen some stellar growth in the last few quarters. For example, in the first quarter of 2022, Microsoft reported a 50% increase in Azure revenue, which dropped down to 40% by Q4 2022. In Q1 2023, the results for which were reported on October 25th, Azure revenue was up 35% which is still better than other segments of Microsoft business.

However, with the macroeconomic headwinds easing out in 2023, Azure revenue is expected to shoot up again to mid-50% growth. Also, the Intelligent Cloud segment, which is primarily made up of Azure revenue contributes to around 40% of the company’s revenue in each quarter.

According to Fortune Business Insights, the cloud computing market is expected to see a CAGR of around 17% between 2022 and 2028 and Azure is responsible for 21% of market stock, the second largest after Amazon Web Services, Microsoft is in a big beneficial position to cash in from the growing segment.

• Acquisition of Activision Blizzard – Microsoft sold its first Xbox console in 2001, and since then it has lost every console battle with Sony’s PlayStation. However, the tide is turning soon i.e., the margin between PS5 and Xbox series X/S is narrowing as seen in 2022.

Additionally, Microsoft is using its financial power over Sony to make acquisitions at Xbox Game Studios. The most important deal is a $68.7 billion offer to buy out Activision Blizzard. This deal is expected to close during Microsoft fiscal 2023, ending in June. With this, Microsoft will offer the most comprehensive catalog of gaming. So, instead of selling more consoles, it can enlarge its Xbox users and can hike subscription fees.

Activision Blizzard will give Microsoft a base of 361 million players and help it reach the 1 billion mark. As the gaming industry is shifting from core hardware PC service to subscription service, Microsoft is poised to gain big with its cash power.

• Netflix chose Microsoft for its ad-supported option- Earlier this year, everyone was amazed when Netflix announced a plan to come up with an ad-supported version to boost revenue and make up for lost subscribers. In July 2022, they have chosen Microsoft as an option to go with an ad-supported version.

Google and Comcast were the front runners & Microsoft was like a dark horse. But the argument that Microsoft does not have its streaming service helped them win the battle against the likes of Google and Comcast. They acquired digital ad business Xandr from AT&T in 2021.

After this acquisition, Microsoft can go to any company for digital ad service and can claim that it has capabilities and there is no direct competition also as Microsoft does not have a streaming service of its own.

In 2023, Microsoft can win can crack more such ad revenue deals and can add to its revenue a big amount. Also, the ad industry which has seen a major downfall in 2022, is expected to stand out in 2023.

Also Read: Microsoft Stock Split

Microsoft Stocks Forecast 2024: Bear Case

• The bad outlook – Microsoft’s Q1 fiscal 2023 results were a mixed bag. The revenue grew 11% YoY to $50.1 billion and the Intelligent Cloud segment grew 20% to $20.3 billion. However, they were a few concerns that raised the eyebrows of analysts and investors.

First of all, its highest growth segment Azure’s growth story deaccelerated i.e., it grew 50% in FY 2022 Q1, 40% in Q4, and now only 35% in Q1 FY 2023 despite that investors were expecting better numbers from Azure. But more worrisome is the overall growth outlook for Q2 FY 2023. Overall revenue is projected to grow only 2% YoY to $52.85 billion, missing analysts’ Q2 guidance of $56.05 billion by a fair distance.

Furthermore, Azure growth is expected to slow down even more to only the low 30% range. Although, investors can digest ups and down in the Personal Computing segment, but, do not want to see slowing growth in Azure, especially when its peer Alphabet’s Google Cloud saw momentum in recent quarters and is quite bullish going into the final quarter of 2022.

In 2023, If Microsoft reports weak guidance for its Q3 and Q4 for fiscal 2023 ending in June for any reason, it will certainly bring down its stock price as it did by more than 7% on October 26th, 2022.

• De- Growth in Personal Computing segment –Consumer demand has fallen across industries due to the rising cost of living, but the PC market is the one with the hardest hit. According to Gartner, PC shipments fell 19.5% in June- September quarter. When AMD announced a shortfall in revenue in the third quarter of 2022 due to plummeting PC sales, Microsoft stock fell 4.5% in a single day.

In the Q1 fiscal year 2023, Microsoft reported a de-growth of 16% in the Personal Computing segment YoY which constitutes about 30% of the overall revenue of the company. With the recession impending in the first half of 2023, it is expected for more de-growth.

Microsoft Stocks Forecast: Conclusion

Is it Safe to Bet on Microsoft in 2023?

To conclude, Microsoft stock has fallen 31% since January 2022. While it has sailed the economic downturns better than its peers, the important question is what 2023 holds for Microsoft stock.

However, it has to be believed that 2023 will be the year for Microsoft due to a couple of reasons. First and foremost is its diversification of business i.e., it is no longer only a Windows company and its cloud computing segment stand out among others. Its buyout of Activision Blizzard and partnership with Netflix will mark new avenues of revenue in 2023.

Trading at a P/E of 32.3 is not very cheap but it is below than its historical value in the last couple of years. Therefore, Microsoft stock will add great value to anybody’s portfolio in the coming year.

Note:  collates Predictions and data from all over the net and has no in-house view on the likely trends in the Stocks or Crypto Coins. Please consult a registered investment advisor to guide you on your financial decisions.

–Vineet Agarwal

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