Shares of Microsoft (MSFT) have gone on an impressive run over the past year, surging some 70%, more than tripling the 22% rise in the S&P 500 index during that span. This includes more than 15% gains in six months, which has doubled the 7% rise in the S&P 500 index.
The software giant has been in a see-saw battle with Apple (AAPL) for the title of the world's most valuable company. The battle for market cap supremacy may create some separation once Microsoft’s earnings are released. The enterprise software and cloud giant is scheduled to report second quarter fiscal 2024 earnings results after the closing bell Tuesday. The stock’s momentum might have only just begun.
Investors have fallen in love with Microsoft for many reasons, chief among them is the company's advances in generative artificial intelligence, as well as the billions it has spent as part of its investment in OpenAI’s ChatGPT. Microsoft has begun to monetize AI, and has since launched Copilot, which leverages AI to enhance its productivity software suite. Copilot is already used by 40% of Fortune 100 companies, and over 37,000 organizations have subscribed to Copilot for Business.
Microsoft 365 Copilot is priced at $30 per month, with some analysts estimating that at $30 per user per month, Copilot could boost Microsoft’s fiscal 2025 revenue by as much as $9 billion. These bullish estimates may have some credence, according to Citigroup analyst who reiterated a Buy rating on the stock, citing Microsoft’s GitHub Copilot, among other growth prospects. GitHub Copilot, created by GitHub and OpenAI, will be available at the end of February at a $39 price point.
GitHub Copilot is a cloud-based AI tool that allows programmers to write code faster. At a price of $39, it can further accelerate Microsoft’s top and bottom line numbers, particularly on the heels of the company’s Q1 results, which showed better-than-expected growth at its Azure cloud unit, helping to beat consensus expectations by a significant margin, coming in at $56.5 billion, translating to a 13% growth year over year. On Tuesday, the company’s guidance will gauge how confident the management feels about its long-term growth potential.
For the quarter that ended December, the Redmond, Wash.-based tech giant is expected to earn $2.78 per share on revenue of $61.1 billion. This compares to the year-ago quarter when earnings were $2.32 per share on $52.75 billion in revenue. For the full year, ending June, earnings are projected to rise 15% year over year to $11.27 per share, while full-year revenue of $243.48 billion would mark a year-over-year increase of 15%.
Notably, the projected full-year revenue growth has more than doubled from 6% projected growth three months ago to 15% projected growth currently. The company’s push into artificial intelligence by way if its $13 billion investment in Open AI has been the main catalyst. AI is expected to fuel Microsoft’s market share among enterprise customers not only cloud adoption but also in its search capabilities.
Microsoft CFO Amy Hood said of Generative AI that it "absolutely should be the fastest $10 billion business we've ever built.” This was certainly noticeable in Q1 as customers were noticeably embracing the value of AI. For Q1, Microsoft earned $2.99 per share on $56.52 billion in revenue, thanks to revenue of $24.26 billion in its intelligent cloud unit and $18.59 billion from its productivity unit. During the quarter, cloud services revenue, comprised of mostly Azure, grew 29% year over year.
Given these improvements, Microsoft stock has the potential to reach $500 per share, if or when Copilot adoption reaches double-digit percentage growth annually. As such, Microsoft remains a must-own stock for any portfolio that values performance and consistent execution.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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