In 2022, the Nasdaq Composite plunged 33%, bringing down the stocks of some of the world's most valuable companies. For instance, despite having the second-largest market cap in the world at $2 trillion, Microsoft (MSFT 0.85%) fell 29% throughout last year. Like many in the tech world, the company was hit by steep declines in the PC market brought on by reduced consumer spending.
However, Microsoft's history of stellar growth suggests recent headwinds are only temporary, and its developing venture in artificial intelligence (AI) is a strong argument for long-term success. The stock has begun trending up since the start of 2023 but remains down 10% year over year. Here's why a stock market sell-off is an excellent time to buy Microsoft.
A history of immense growth
Microsoft went public in March 1986 at $21 per share. It has climbed so high over the years that the company has had nine stock splits in total. Thirty-seven years later, Microsoft continues to provide investors with consistent and substantial growth. Even with 2022's decline, over the last five years, the stock has risen 203%, and by 864% over the last decade. And since 2018, annual revenue has climbed 80% to $198 billion, with operating income soaring 138% to $83 billion.
The company's gains are mainly thanks to the dominance of such software as Windows, Office, Xbox, and Azure. These have established strong positions in markets like operating systems, productivity software, gaming, and cloud computing. For instance, Xbox holds a 30% share in gaming, and Azure has a 21% share in cloud computing. These and other products are likely to keep the company on its current growth trajectory for decades.
A lucrative future in a high-growth market
The launch of OpenAI's ChatGPT in November 2022 kicked off an AI race that has seen many companies venture into the burgeoning market. So far, Microsoft has had the advantage in the race, investing $1 billion in OpenAI in 2019. ChatGPT's success prompted the company to invest another $10 billion in OpenAI in January.
According to Grand View Research, the AI market was valued at $137 billion in 2022 and is projected to expand at a compound annual rate of 37.3% through 2030. And Microsoft's investment in OpenAI has allowed it to use its technologies in several programs. For example, ChatGPT has been integrated into Microsoft's search engine Bing and is available on its cloud platform Azure.
The stock surged 5% from March 15 to 17 after an announcement that the company would enhance its Office productivity software (like Word and Excel) with OpenAI technology. Microsoft says the AI features, dubbed Copilot, will provide a "first draft to edit and iterate on -- saving hours in writing, sourcing, and editing time."
The recent sell-off has decreased the stock's forward price-to-earnings ratio (P/E) 10% over the last year, leaving it at 29. While that figure on its own isn't impressive, it does offer far more value than its biggest cloud competitor, Amazon, which has a forward P/E of 69.
A history of consistent stock growth and a promising future in AI combine to make Microsoft's stock a solid buy after its steep drop last year.