At the start of March, it may have seemed as if Microsoft’s (NASDAQ:MSFT) 2023 rally was ending, but in recent weeks, enthusiasm for MSFT stock has renewed. The megacap tech stock has zoomed above the $250 per share price level, and today trades for around $275 per share.
Excitement over MSFT’s artificial intelligence catalyst has been a key factor behind its double-digit move higher year-to-date. So far holding a leading position in the “A.I. wars,” investors are bullish that Microsoft will successfully monetize the generative-A.I. technology from its partnership with ChatGPT developer OpenAI.
That said, with its move higher over the past three months, some may believe MSFT has gone up too far, too fast. While enthusiasm could cool off once again in the near-term, don’t assume the party’s over just yet. Here’s why.
Why MSFT Stock has Re-Gained Momentum
Since “A.I mania” first took hold in the markets during January, those more skeptical of the trend have called it an “A.I. bubble,” destined to pop/deflate as exuberance cooled, and investors conceded it would take years for mass adoption of A.I. turn into profits for large and not-so-large tech firms alike.
However, except for the late-February pullback, a top has yet to be reached with A.I. plays, and MSFT stock is no exception. Of course, it’s not just the general trend that has lifted shares even higher since mid-March. Company-specific news has been a factor.
For instance, Microsoft recently unveiled how it plans to integrate generative A.I. technology into platforms beyond just its Bing search engine and Edge web browser. This includes the planned launch of Microsoft 365 Copilot.
As multiple sell-side analysts have argued, Microsoft 365 Copilot stands to be an attractive add-on for end-users, given its potential to enhance productivity when using applications like Excel and PowerPoint.
Microsoft has again shown that there’s far more substance than hype with its A.I. catalyst. This technology could far more quickly make a big impact on its top and bottom lines.
Don’t Fear a Possible Pulllback
Although it may appear that MSFT stock, along with other A.I. stocks, have defied the skeptics, another round of weakness may be just around the corner. After the most recent rise, the stock is now trading at approximately 30.7 times earnings. With this, investors may again become leery about paying up for this tech giant.
I’m not saying that MSFT will cough back this year’s gains, but a retreat to $250 per share is not out of the question. Microsoft could resume trading sideways in the near-term, yet continue to perform strongly in the long run.
Although MSFT right now is pricier than other big tech names, this valuation premium is justified. Yes, it’s not as if forecasts call for Microsoft and only Microsoft to report record growth coming out of the current tech slowdown.
However, with Microsoft’s strong execution with A.I., there is greater confidence in these future results. Hence, it is justified to have greater confidence in MSFT sustaining (and growing) its current valuation.
Microsoft’s A.I. efforts could pay off, by sparking a growth resurgence for its Bing, Edge, and Office 365 platforms. This technology could also come in handy in re-accelerating growth in its Azure cloud computing segment.
Yet while A.I. is the company’s main growth catalyst, don’t assume that it’s the only one. Microsoft Teams continues to be leaps and bounds ahead of other business communication platforms, and with new innovations, could continue to grow its number of monthly active users.
Microsoft’s pending deal to acquire video game company Activision Blizzard (NASDAQ:ATVI) now appears to be more likely to withstand regulatory scrutiny. Assuming it closes, this deal could both bolster Microsoft’s presence in both gaming and the metaverse.
Taking into account both its A.I. and non-A.I. catalysts, consider MSFT stock a buy on any weakness.
MSFT 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.