As the world's second most valuable company with a market cap of $2.8 billion, it's hard not to be bullish about Microsoft (MSFT +0.60%). The company is a leader in productivity software, with millions of businesses worldwide relying on its platforms. Meanwhile, it emerged as one of the biggest threats in artificial intelligence (AI) in 2023 thanks to a lucrative partnership with ChatGPT developer OpenAI.
Shares in Microsoft have risen more than 380,000% since it went public in 1986, which could suggest the best time to buy its stock was long ago. However, the tech industry is an ever-expanding market known for offering innovative companies consistent gains over the long term. As one of its leaders, Microsoft likely still has much to offer new investors in the coming years.
So, here's why it's not too late to buy Microsoft stock.
Microsoft has proven resilience against macroeconomic headwinds
An economic downturn caused a dramatic sell-off in 2022, with tech stocks hit particularly hard. Spikes in inflation led to reductions in consumer and commercial spending, reflected in multiple quarters of dismal earnings from several companies.
While Microsoft was not unscathed, it outperformed many of its peers during the challenging year, illustrating the lack of vulnerabilities in its business compared to the competition.
Data by YCharts.
This chart shows Microsoft's stock experienced a more moderate decline than many of the most prominent tech firms and was one of the few to outperform the Nasdaq Composite in 2022. While many of these companies relied heavily on economically vulnerable industries like digital advertising and the consumer sector, Microsoft's larger focus on software fortified its business against the worst market declines.
Easing inflation and excitement over budding sectors like AI have triggered a recovery for the tech market over the last year, with the future bright for many companies in 2024. However, it's still worth dedicating a significant portion of your portfolio to a reliable stock like Microsoft, which you can confidently hold no matter the economic climate.
In the first quarter of 2024 (which ended September 2023), Microsoft posted revenue growth of 13% year over year as it beat analysts' expectations by almost $2 billion. Meanwhile, its free cash flow topped $63 billion. As a result, the company is on a promising growth path, with the funds to fuel its research and development (R&D) and overcome any potential headwinds.
An early investor in artificial intelligence (AI)
Microsoft had the foresight of the decade when it invested $1 billion in OpenAI in 2019. The company has since extended its partnership with the start-up, achieving a 49% stake in its business and gaining exclusive access to some of the most advanced AI models available.
Microsoft's headstart in AI gave it a leg up on competitors like Amazon and Alphabet, using OpenAI's technology to bring upgrades across its product lineup.
Over the last year, Microsoft added new AI tools to its cloud platform Azure, updated Bing with ChatGPT-like features, and boosted efficiency on its various Office productivity services with the help of AI. The company has built immense brand loyalty with its substantial user base over the years, giving it almost endless earnings potential in AI.
Microsoft is already making moves to monetize its AI offerings, introducing an AI assistant called Copilot on Microsoft 365 last year. The assistant is a chatbot that can be used in apps such as Word, Excel, PowerPoint, Outlook, and more. Microsoft 365 members can add Copilot to an existing subscription for an extra $30 per month.
NASDAQ: MSFT
Key Data Points
According to Grand View Research, the AI market is projected to develop at a compound annual growth rate of 37% through 2030, exceeding a value of $1 trillion. Meanwhile, Microsoft is setting itself up to be the go-to for anyone seeking AI services, whether their purposes are business, educational, or lifestyle.
Microsoft's stock looks slightly expensive, with a forward price-to-earnings ratio of around 34. However, hard-hitting brands like Office, Azure, and Xbox, a history of resilience, and significant cash reserves suggest the company has earned its premium price. Microsoft is nowhere near hitting its ceiling, and with the power of AI, it could have a long, lucrative future that you won't want to miss out on. As a result, it's certainly not too late to invest in this tech giant.
