Microsoft (NASDAQ: MSFT) has typically been a safe tech stock to own. This year, however, has been a particularly volatile one for the tech company. Microsoft started the year in a tailspin as concerns about artificial intelligence (AI) weighed on not just its stock but on software stocks as a whole, amid fears that AI would diminish the need for subscriptions.
Recently, the market appears to be rethinking that narrative, as Microsoft shares have been flying higher after the company reported strong quarterly earnings. The stock appears to be on a stronger footing of late, and its valuation may not be nearly as attractive as it was even a month ago. Is it still a good time to buy Microsoft's stock, or are investors better off waiting for a dip in its price?
This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia.
Continue » While Microsoft may not be the dirt cheap stock it was earlier in the year, its valuation still isn't all that high given how much investors have been paying for it in the past. Over the past five years, it has traded at an average price-to-earnings multiple of 32, and at around 27 right now, it's well below that today. The big question, however, is whether it was overvalued to begin with.
The company typically generates double-digit growth, but whether that's enough to justify paying more than 30 times earnings is debatable. Many stocks have been trading at elevated levels in recent years, and Microsoft has been no exception to that. What it may come down to is expectations for the company's future growth and how much of a boost investors expect the business to get from artificial intelligence (AI).
In its most recent quarterly earnings report, Microsoft gave investors many reasons to be optimistic about its future growth prospects. Azure hit $100 billion in revenue for the first time in a full fiscal year, with its growth rate rising to 43% in the fourth quarter. Microsoft 365 Copilot also appears to be winning over customers, hitting 30 million paid seats.
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