Microsoft (NASDAQ:MSFT) has been range bound for several months. This could remain the case in the immediate-term for Microsoft stock. Rate cut uncertainty has crept up again. Perhaps, after over a year of “AI mania,” a bit of “AI fatigue” has taken shape. Investors worry AI growth is overvalued in tech stocks, including Microsoft.
MSFT may struggle to rally soon, but the story isn’t finished. We don’t expect another long-term slump in shares like after the Dotcom crash. Instead, far sooner than you think, the positive impact of Microsoft’s AI monetization on overall results could drive the next big surge for shares.
Microsoft Stock: A New End-User Frontier Emerges
Microsoft has been swift to integrate generative AI into its existing products. It has also been creating new subscription-based applications built with this groundbreaking technology.
For instance, products like CoPilot for Microsoft 365, as well as Security for CoPilot. Like we’ve pointed out before, both these platforms have the potential to eventually generate tens of billions in additional annual revenue for the company.
While uncertain, the AI software early-mover may have yet another monetization opportunity emerging.
This opportunity may mark the start of another potential needle-mover in the making for Microsoft stock. As seen in recent headlines, Microsoft is reportedly working on an Xbox AI support chatbot.
While this chatbot itself may not be a needle-mover for MSFT, this could be the first sign that the company has big plans to integrate generative AI technology into its video game business.
Despite becoming a much larger part of the overall company, following last year’s acquisition of Activision, Microsoft’s Xbox video game unit has arguably fallen onto the back burner in the minds of investors.
However, the potential to commercialize its AI technology through this segment provides yet another avenue for elevated levels of growth.
The Likely End Result from Many Streams of Growth
The future performance of Microsoft stock hinges heavily on the development of AI-related growth streams. Fortunately, as we can clearly see, the company is in the midst of developing many such streams.
Per Microsoft’s fiscal results for the quarter ending Dec. 31, 2023, the company has only so far scratched the service in terms of turning this technology into increased revenue and earnings.
Yet over the next few quarters, AI is poised to make a more significant impact on both the top and bottom lines.
Yes, sell-side consensus calls for growth to come in at around 14% for both revenue and earnings during the upcoming fiscal year ending June 2025. To some, this may seem too low. After all, MSFT, trading for 36 times forward earnings, is priced for higher levels of growth.
However, given the size and scope of the company’s AI integration, results in the coming fiscal year may have a strong chance of coming in line with the top end of forecasts.
These call for revenue of nearly $300 billion, and earnings of $14.34 per share, representing growth in excess of 20%. If that doesn’t sound promising enough, FY 2026 could bring similar growth levels.
The Verdict: Feel Free to Buy, Especially on Any Weakness
Microsoft is fully committed to maximizing AI growth. This leaves the company well-positioned to grow at a relatively high pace compared to its mammoth size.
If growth comes in at around the 20% range, shares could easily maintain their current rich forward valuation. Yes, an additional expansion of this multiple may be a stretch goal at best.
There’s potential for shares to align with higher earnings. This prospect alone is promising enough to keep the stock in buy territory.
While being mindful of potential volatility in the short-term, feel free to still make Microsoft stock a long-term buy for your portfolio. In fact, near-term turbulence could work in your favor, as it may enable you to enter/add to a position on major weakness.
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.