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Is Microsoft a Buy at Current Levels?

By Haris Anwar/Investing.comStock MarketsNov 21, 2022 02:02PM ET
www.investing.com/analysis/is-microsoft-a-buy-at-current-levels-200632637
Is Microsoft a Buy at Current Levels?
By Haris Anwar/Investing.com   |  Nov 21, 2022 02:02PM ET
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  • Shares of the U.S.'s second most valuable company, Microsoft are down 30% from their November 2021 peak
  • Microsoft last month posted its weakest quarterly revenue growth in five years
  • As this weakness lingers, many analysts have downgraded their price targets for MSFT during the past month

Like its big-tech peers, Microsoft Corporation (NASDAQ:MSFT) hasn't escaped this year's market downturn. Shares of the U.S.'s second most valuable company are down 30% from their November 2021 peak.

MSFT Weekly Chart
MSFT Weekly Chart

However, after such a massive move to the downside, many investors, like me, are wondering if this is the right time to take advantage of this weakness and buy MSFT stock, which has proven to be a highly profitable and safe investment during the last decade.

Even after the downturn, investors who bought MSFT stock five years ago and held it made more than 150% in total returns. In contrast, the tech-heavy NASDAQ-100 Index delivered about 60% returns during the same period.

Tech Wreck

In a note to clients earlier today, Goldman Sachs said the current rally is temporary, forecasting a market bottom in 2023. The investment bank said that while valuations had fallen this year, they had mostly done so in response to rising interest rates. In addition, the bank noted that investors haven't yet priced in earnings losses from a recession.

Some analysts believe that tech giants will remain under pressure for many years to come as they face a sharp rise in services and wage costs that will weigh on their growth.

Microsoft isn't completely immune to these macro headwinds. Last month, the company posted its weakest quarterly revenue growth in five years, hurt by the strong U.S. dollar and weakness in Windows software sales to personal computer makers.

As this weakness lingers, some analysts have downgraded their price targets for MSFT during the past month as they consider the near-term headwinds. Still, the stock remains an outperform at Investing.com.

MSFT Consensus Estimates
MSFT Consensus Estimates

Source: Investing.com

The Bull Case

But while the jury is still out on how far the current bear market can go, there are many reasons to support the Redmond, Washington-based stock in the long term.

First, Microsoft is well-entrenched in the digital economy due to its diversified business model, including a suite of Office products, cloud services, and a gaming unit.

Though Microsoft's revenue and margins are under pressure, the company is well-positioned to withstand the economic downturns due to its diversified business and pricing power.

The company's cloud computing business has been the major driving force behind the stock's surge in the past five years—a period in which its CEO, Satya Nadella, branched out into new growth areas, mainly focusing on the cloud computing arena.

The latest earnings clearly showed this strength. While MSFT's sales from Windows software to P.C. makers slowed considerably in the previous quarter, demand remained strong for cloud services.

MSFT Financial Health
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Source: InvestingPro

Sales of Azure services, which run and store businesses' software applications, and web-based versions of Office productivity programs, rose 42%, excluding the currency impact. This unprecedented growth streak in cloud computing has many more years to last.

The global cloud computing market is expected to reach $1554.94 billion by 2030, registering a CAGR of 15.7% from 2022 to 2030, according to a new report by Grand View Research.

Microsoft's Azure unit—behind only Amazon.com's (NASDAQ:AMZN) AWS web service group in the cloud infrastructure services arena— will likely be a major beneficiary of this upcycle.

Microsoft's strong balance sheet and dividend program offer another solid reason for investors looking to take refuge in the current uncertain times. MSFT currently pays $0.68 quarterly for an annual yield of 1.13%.

But with cash reserves exceeding $130 billion, the company has enough firepower to support its stock through share buybacks and dividend hikes. Microsoft is just one of two publicly traded companies to earn top triple-A ratings from Moody's Investors Service and S&P Global Ratings, the two biggest credit companies.

Bottom Line

It's hard to predict when the market will bottom out in the down cycle, but one thing is clear to me: companies like Microsoft, which have a strong economic moat and powerful products, aren't going anywhere. That said, this market downturn may offer investors with a long-term investment horizon a chance to take a position in this excellent business to earn steadily growing returns.

Disclosure: As of the time of writing, the author is long on MSFT stock. The views expressed in this article are solely the author's opinion and should not be taken as investment advice.

Is Microsoft a Buy at Current Levels?
 

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Is Microsoft a Buy at Current Levels?

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Comments (8)
Chris Harrells
Chris Harrells 5 hours ago
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Some Stocks are currently falling and Bitcoin is rising, But markets still don't seem convinced the federal reserve will pursue plans to keep increasing interest rates until inflation is under control. I was at a crossroads deciding if to liquidate my $227k stock portfolio, I swapped that to Bitcoin and invested with Mr Ehis and I Got $940,000 into my Binance wallet in just 4 Trading days 🅆🄷🄰🅃🅂🄰🄿🄿📥 +1 564📲544📲8645 ⒤⒩⒮⒯⒜⒢⒭⒜⒨📥🅢🅣ⓔⓕⓐⓝ🅜🅤ⓔ🅛🅛ⓔⓡ_ⓣⓡⓐⓓⓔ🅢
Joe Trader
Joe Trader Nov 22, 2022 8:38AM ET
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I’m a professional and I can surely say cloud growth has peaked. Only those companies with very good cash flow can afford to expand their cloud infra. Cloud service providers will face big challenges to their revenue growth
Bill Riley
Bill Riley Nov 21, 2022 10:58PM ET
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go WOKE Go broke. Microsoft stock is artificially inflated by passive investing. ETFs and Mutual funds make it bigger than it's really worth.
Minh Vo
Minh Vo Nov 21, 2022 10:51PM ET
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Market bankruptcy yeah,yeah
Leon Kelly
Leon Kelly Nov 21, 2022 9:00PM ET
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will revisit this after q1 2023
Adamo Nals
Adamo Nals Nov 21, 2022 2:57PM ET
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Sir, have you forgotten how to price equities? Fair value for Microsoft is $163 right now. I’ll report to you and everyone else. Everyone has forgotten how to price equities and indexes. Almost every single technology stock, and most stocks in the market grossly overvalue are grossly overvalued. It’s simple math.which Everyone is ignoring and throwing out the window. Apple fair value is $93. Visa fair value is $157.80. Netflix FV is $112.88. Boeing FV is $40.28. I can go on and on and on and on. For the S&P 500. $200 a share times 14 X equals 2800. That is how disgustingly grossly over valued this gross market hubble is. Again it’s just simple math. That’s how you price equities and indexes. Period. So wake up everyone. Any stock other than energy right now that you’re buying is overvalued
Sandeep Pa
Sandeep Pa Nov 21, 2022 2:10PM ET
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No, not a buy
Charles Barnes
Charles Barnes Nov 21, 2022 2:04PM ET
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Good insight
 
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