Microsoft’s generative artificial intelligence prospects are undeniably impressive, but the stock has a lot more to offer investors than just cutting-edge technology. According to Jim Cramer, Microsoft shares could hit bottom on Wednesday, making it the top choice among megacap tech stocks to buy. Despite closing at a record high of $467 on July 5, the stock quickly began to slide, facing challenges following its July 30 earnings report and a recent bottom in the August 5 market plunge. Although the stock saw a recovery, it stalled out and turned lower once again, exacerbated by the tech wreck on Tuesday, bringing shares back to around $408 each on Wednesday.
Wells Fargo analysts are also bullish on Microsoft, pointing out three key areas — search, cybersecurity, and enterprise software — that could contribute to the company’s overall revenue growth. They have added Microsoft to their “Signature Picks” list, maintaining a buy-equivalent overweight rating and setting a price target of $515. Additionally, the Club has set a price target of $500 for the stock.
Microsoft’s search engine Bing could potentially gain more market share from Alphabet’s Google following a recent antitrust case loss regarding exclusivity deals with device makers like Apple. With the possibility of Google Search no longer being the default search engine on iPhones, Microsoft could see a boost in business. While Bing’s market share is relatively small compared to Google Search, there is potential for growth in this area.
In terms of cybersecurity, Microsoft has quietly become the largest cybersecurity vendor globally, continuously gaining market share in adjacent areas. As the threat of cyberattacks remains high, Microsoft’s cybersecurity business is well-positioned to attract major corporations as clients. In fact, CEO Satya Nadella announced that the company’s cybersecurity business had surpassed $20 billion in revenue over a 12-month period in 2023.
Moreover, Microsoft’s customer relationship software suite, Dynamics, has significant cross-sell potential, leveraging the company’s massive customer base from its cloud computing business Azure and productivity apps included in Office. This presents an opportunity for further revenue growth in the enterprise software segment.
While Microsoft’s generative AI efforts remain a crucial part of the investment thesis, these underappreciated areas of search, cybersecurity, and enterprise software offer additional growth opportunities for the company. Despite a slight miss in Azure revenue expectations last quarter, there is optimism for a pickup in the second half of the year based on management’s positive outlook.
Wall Street firms, including Wells Fargo and Piper Sandler, are bullish on Microsoft’s prospects, with the latter adding the stock to its high-conviction buy list due to the AI tailwinds. As investors consider the potential of Microsoft beyond its AI capabilities, the stock continues to be an attractive option in the tech sector.
