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3 Reasons to Buy Microsoft Stock Right Now

InvestorPlace2024-07-18

  • Microsoft’s (MSFT) massive AI investments reflect the company’s long-term strategic shift toward efficiency.
  • The company’s Dow inclusion may eventually necessitate a stock split, which could be a catalyst on the horizon.
  • Here are a few other factors to consider behind the bull case on MSFT stock. 

Source: The Art of Pics / Shutterstock.com

Standing out as one of the best long-term stocks to buy and hold, Microsoft (NASDAQ:MSFT) truly offers advantages in AI and cloud computing. The company’s strategic position in AI is enviable. Indeed, there’s good reason this secular growth catalyst is the one many experts believe could drive Microsoft stock higher over the long-term.

That said, Microsoft isn’t a one-trick pony. Over the past year, Microsoft’s Cloud segment brought in $35.1 billion in revenue, partly driven by strong AI demand. Shareholders also received plenty of capital return, with $8.4 billion in share dividends and repurchases paid out by the company.

Moreover, Microsoft’s investment in OpenAI provides even more opportunity for the company to continue to innovate in the AI space long term. Here are three reasons why investors ought to keep MSFT stock on the watch list right now.

Great Leadership 

Earlier this year, Satya Nadella unexpectedly secured a deal with Inflection AI, led by DeepMind co-founder Mustafa Suleyman. Despite raising over $1.5 billion and hiring top talent, Inflection lacked profitability and had a poor management reputation.

Nevertheless, Microsoft invested over $650 million to license its technology, acquired most of its staff, and placed Suleyman in charge of a $12 billion segment. Indeed, I believe this is a bold move and one the market may not be appreciating enough.

Satya Nadella’s risky investments in AI have become routine. He committed $13 billion to OpenAI despite its low profitability and urged his team to integrate AI across Microsoft products, even with inconsistent results.

Nadella views the AI boom as a crucial opportunity to position Microsoft for dominance, avoiding past mistakes from the dot-com and smartphone eras.

Microsoft’s investors have embraced Nadella’s AI gamble, leading to a 70% increase in the company’s value to over $3.3 trillion. This growth positions Microsoft among the top three publicly traded companies alongside Nvidia and Apple.

Despite his low-key style, Nadella’s bold vision for AI has transformed Microsoft’s fortunes, rebuilding its reputation after years of decline under Steve Ballmer.

Possible Stock Splits

Microsoft may soon split its stock, in part because of its inclusion in the Dow Jones Industrial Average, a price-weighted index. High-priced stocks like Microsoft have a disproportionate influence on such indexes. And as we all know, stock splits tend to be very bullish for specific stocks over most time frames.

Investors might remember Apple’s (NASDAQ:AAPL) 4-for-1 stock split in August 2020 when its share price neared $500, or Nvidia’s (NASDAQ:NVDA) recent split, which took its shares to a much more reasonable level (and they continue to climb). Therefore, a similar move by Microsoft soon wouldn’t be surprising.

While the timing of Microsoft’s next stock split is uncertain, it’s likely imminent due to this company’s Dow 30 position. A split is needed to prevent Microsoft’s stock price from overly influencing the index.

Investors should recognize the tech-driven growth under Nadella, making Microsoft a leader in cloud and AI. This growth makes a split probable, irrespective of Dow pressure.

Excellent Growth

Microsoft, driven by underlying business growth and a shift to cloud services under CEO Satya Nadella, is a prime stock split candidate. Since Nadella’s 2014 appointment, Microsoft has focused on cloud and mobile-friendly software, making Azure the second-most popular cloud platform after Amazon Web Services.

Nadella also pivoted Microsoft toward AI, partnering with OpenAI to integrate ChatGPT into Bing and launching the AI-powered chatbot Copilot.

This move positioned Microsoft as a competitor to Alphabet’s search business, boosting its market cap to over $3.4 trillion. With continued growth in cloud and AI, a stock split seems inevitable, regardless of Dow association.

If this growth can continue, MSFT stock remains a top pick long-term investors will certainly kick themselves for not owning. In my view, Microsoft remains one of the best megacap growth stocks to continue owning long-term.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

Technology, Artificial Intelligence, Cloud, Consumer Discretionary, Retail


Article printed from InvestorPlace Media, https://investorplace.com/2024/07/3-reasons-to-buy-microsoft-stock-right-now/.

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Comment1

  • 中蓝的中榕
    ·2024-07-18
    This article provides compelling reasons to consider investing in Microsoft stock at this time. The emphasis on Microsoft's robust financial health, consistent growth, and strategic positioning in key markets is particularly reassuring. The points on the company's strong cash flow, commitment to innovation, and successful ventures into cloud computing and AI highlight its potential for continued success. Additionally, the mention of favorable stock splits and excellent growth metrics further solidifies the case for Microsoft as a sound investment choice. Overall, the detailed analysis and clear presentation of facts make a persuasive argument for buying Microsoft stock.
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