After a spectacular rally from the start of the year through August, tech stocks faced a significant downturn in September. This sudden decline was attributed to profit-taking amidst the artificial intelligence (AI) hype and concerns arising from hawkish comments by the Federal Reserve, coupled with lingering recession risks.
Nevertheless, amid the tech turmoil, a silver lining emerges for savvy investors. Many tech giants, which had been pivotal in driving the S&P 500‘s impressive 2023 gains, now offer enticing discounts. Notably, one such standout is the tech titan, Microsoft (NASDAQ: MSFT).
Today, on October 3, we explore specific reasons why investors should consider hopping aboard the MSFT train at this opportune moment.
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AI, the unprecedented catalyst
The emergence of generative AI solutions like ChatGPT has taken the world by storm this year, and Microsoft is right in the middle of it all.
One of the company’s first AI-related efforts this year was its $10 billion investment in ChatGPT maker OpenAI in January. With an investment of that scope, it is safe to say that any future growth of ChatGPT will likely significantly benefit Microsoft and its dominance in the ever-growing AI space.
The company then went on to implement the underlying technology behind the chatbot into its own range of products, including Azure, Office, and Bing search engine, among others. More recently, Microsoft announced the launch of Copilot, “the everyday AI companion.” The chatbot is available on Windows 11 and Microsoft 365, as well as Microsoft’s web browser and search engine, Edge and Bing.
The AI market is projected to hit nearly $2 trillion by 2030, marking a twentyfold growth potential compared to its current worth of around $100 billion, according to Next Move Strategy Consulting.
Judging from its recent moves, Microsoft will spare no effort in its attempts to fully capitalize on that expansion.
Cloud computing leader
While its AI endeavors press ahead at full steam, cloud computing remains one of Microsoft’s key growth drivers. In fact, it is the emergence of generative AI that will likely usher in a new era of growth in Microsoft Azure, the company’s cloud business.
The rollout of gen AI solutions and Microsoft Copilot have improved digital productivity, and will likely continue to fuel demand for Microsoft’s cloud computing services.
At the moment, Azure is the fastest evolving key growth indicator of Microsoft, along with its crucial collaboration with OpenAI on generative AI services.
Analysts at Citi believe that Microsoft’s “cloud-related revenue streams will enable growth to continue at double-digit levels, with operating margin expansion.” As such, the experts rated MSFT as Buy.
Strong company fundamentals
There is a reason why MSFT has been one of the biggest blue-chip stocks for years. After decades of unprecedented growth, the company is the largest maker of enterprise and consumer software products, with over $200 billion in annual revenue.
Having said that, the tech giant continues to display strong fundamentals in 2023, with robust earnings growth and return on equity (ROE), which serves as a measure of a company’s profitability.
In July, the tech corporation reported solid quarterly earnings per share (EPS) of $2.69, beating Wall Street’s estimates of $2.55 apiece. In addition, the company also displayed impressive financial health in terms of ROE and net margin of 38.70% and 34.15%, respectively.
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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
