The bears are out in force, but savvy investors know how to take advantage. It’s an opportunity to build wealth by investing in excellent companies at steeply discounted prices. Microsoft (NASDAQ:MSFT) is one of the top growth stocks that have been hit in the current bear market. It’s trading at a hefty discount to its intrinsic value, presenting investors with massive upside potential. Hence, we are bullish on MSFT stock.
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For years, Microsoft’s leadership was steering the company towards emphasizing traditional desktop software while overlooking mobile and cloud-based services, which CEO Satya Nadella has prioritized since 2014. It has paid off big time for the company as the global trend of business digitization drives Microsoft’s expansion.
As businesses shift their operations to the cloud, the demand for MSFT’s productivity software and cloud computing services has increased substantially. Moreover, the expansion of digital entertainment has fueled growth in this tech giant’s gaming and streaming offerings.
Microsoft Corporation is the best of its large-cap peers and is set to outperform them. It has more leverage in mission-critical business functions, which are immune to the current macroeconomic headwinds. Moreover, its valuation is near pre-COVID levels now, making it a great time to bet on it.
Microsoft Has a Burgeoning Cloud Business
The cloud computing industry is maturing, and businesses are increasingly choosing Amazon Web Services (AWS), Microsoft Azure, or Google Cloud Platform over building their own server farms. Together these three providers account for more than 60% of all clouds worldwide.
The Microsoft Azure platform is second only to Amazon Web Services, with a 20% market share. The gap could narrow in coming years, as it’s been growing by roughly 50% for much of the last decade.
The cloud computing market is competitive but doesn’t seem to be hurting margins yet. AWS reported an operating margin of 29% for its most recent quarter, while Microsoft’s Azure has been even more profitable, with a 43% operating margin over the last twelve months.
The cloud business is a booming industry, and Microsoft Azure has the potential for plenty more growth in this space. The company’s sales could even outpace its competitors if they continue on its current path. Microsoft has established itself as a leading player in many high-growth markets thanks to its innovative technology and strong management skills.
Microsoft is a Cash-Flow Generating Machine
Microsoft has been one of the most cash-rich businesses for some time. Not only does its revenue grow each year, but Microsoft generated $89 billion in cash flow and $65 billion in free cash flow over the last twelve months.
Microsoft’s operating income jumped 19% last quarter and was up to $83.4 billion for Fiscal Year 2022. CEO Nadella says, “no company is better positioned than Microsoft to help organizations deliver on their digital imperative.”
The cash is being used for acquisitions such as Activision Blizzard. Moreover, the company has been sending billions of dollars back into investors’ pockets through dividends and buybacks. Shareholders typically love when businesses provide them stability during times when markets are lower because it ensures their money won’t be tied up.
Layer that up with Microsoft’s dominant share in office productivity, operating systems, servers, and gaming sectors, and you have a stock that is likely to mount a comeback in the not-so-distant future.
Is Microsoft Stock Bullish or Bearish?
Turning to Wall Street, Microsoft stock has a Strong Buy consensus rating. Out of 29 total analyst ratings, 26 Buys, three Holds, and zero Sells were assigned over the past three months. The average MSFT stock price target is $321.45, implying 38% upside potential. Analyst price targets range from a low of $275 per share to a high of $411 per share.
Takeaway: MSFT Stock is a Leader That’s Well-Priced
Microsoft is a force in the tech sphere like none other and is expected to grow profits by 15% annually over the next half-decade. Shares currently trade below 25 times earnings, which seems well-priced considering its earnings growth.
Microsoft has one of the most impressive records in tech regarding dividend growth. Last week, their board approved an increase from a 9% annual payout to 11%, bringing the current yield to 1.2%. It returned an incredible $12.4 billion to shareholders in its fourth quarter alone, a 19% from the prior-year period.
Microsoft’s position in the cloud, gaming, and digital transformation is unparalleled. The company has many more years of growth ahead due to its strong market share, which should allow it to hold competitors at bay while expanding into new markets with financial prowess.
Microsoft is a proven winner with many opportunities for long-term investors. The company’s stock is trading at a hefty discount due to current market conditions, making it an attractive buy today.
