Tech giant Microsoft (NASDAQ:MSFT) is now a part of TipRanks’ “Perfect 10” Smart Score list that comprises stocks with a higher potential to beat the benchmark index. Historically, shares with a “Perfect 10” Smart Score have outperformed the S&P 500 Index (SPX) by a significant margin, as indicated in the graph below.
Microsoft Deserves a “Perfect 10”
Microsoft’s diversified business model is expected to help it sail through challenging macro conditions. The company’s revenue streams include productivity and collaboration tools and services, including Office 365, Dynamics 365, and LinkedIn, its Azure cloud computing platform, and personal computing devices.
Microsoft’s Q1 FY23 (ended September 30, 2022) results topped expectations even as the company reported its slowest revenue growth in five years. Revenue grew 10.6% to $50.1 billion in Fiscal Q1, as the 20% growth in the Intelligent Cloud division’s revenue and 9% rise in Productivity and Business Processes’ revenue helped in more than offsetting the weakness in the More Personal Computing division. The More Personal Computing division was hit by lower Windows revenue from device makers.
While the weak demand for PCs and forex headwinds could continue to impact Microsoft over the near term, most analysts remain optimistic about the company’s long-term growth potential, especially in the cloud business. Under the leadership of CEO Satya Nadella, the company’s Azure platform has emerged as the second largest player in the cloud computing market, trailing only Amazon’s (AMZN) AWS (Amazon Web Services).
Recently, Morgan Stanley analyst Keith Weiss reiterated a Buy rating on Microsoft stock with a price target of $307. Weiss believes that the strong demand in the company’s commercial businesses should drive improved growth rates in the second half of FY23. Weiss also highlighted favorable valuation and multiple revenue tailwinds heading into the second half of FY23 as the reasons for his bullish stance. Moreover, he expects Microsoft’s operating expenses to normalize in the second half of FY23.
What is the Target Price for Microsoft Stock?
Microsoft earns the Street’s Strong Buy consensus rating based on 25 Buys and three Holds. The average MSFT stock price target of $291.10 suggests 21% upside potential. Shares are down nearly 28% year-to-date. Microsoft stock is trading at a forward Price/Earnings (P/E) multiple of 25.3, which is 17.7% lower than its five-year average multiple.
Final Thoughts
Microsoft deserves a “Perfect 10” Smart Score based on its solid fundamentals, diversified business model, strong leadership, and continued investments in high-growth areas.
As per TipRanks, the Hedge Fund Confidence Signal for Microsoft is Very Positive based on the activity of 163 hedge funds in the recent quarter. Overall, hedge funds increased their holdings in MSFT by 33.1 million shares last quarter.
