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As artificial intelligence (AI) continues to lead the conversation on Wall Street, the "Magnificent 7" standout Microsoft (MSFT) has emerged to dominate the AI software space. Microsoft caught the attention of Morgan Stanley (MS) last year, when analysts singled out the OpenAI backer as the top software company poised to benefit from AI growth in infrastructure and applications.
Now, as investors begin to cast a wary eye on AI stocks - with early leaders like Nvidia (NVDA) entering correction territory - Morgan Stanley last week updated its Microsoft forecast through the end of the decade. The bank’s analysts, led by Keith Weiss, kept an “Overweight” rating on Microsoft shares and raised the stock's price target from $465 to $520 - implying expected upside of 26% from here.
In a note accompanying the price-target hike, Morgan Stanley cited Microsoft’s potential to generate up to $120 billion in revenue from generative AI by 2029. Furthermore, the analysts project that Microsoft’s EPS could more than double to $24 by fiscal 2029 from expected 2024 levels.
With just about one week left until the company’s next quarterly earnings report, let’s see how much upside other analysts are predicting for Microsoft stock.
About Microsoft Stock
Headquartered in Redmond, Washington, Microsoft (MSFT) stands out as a global technology giant, boasting a market cap of a whopping $3.1 trillion. Renowned for dominating the PC software market and offering a comprehensive suite of cloud-based solutions through Azure, it is a leader in operating systems and productivity software.
Shares of Microsoft have surged 42.6% over the past 52 weeks, surpassing the S&P 500 Index’s ($SPX) 21% return during the same timeframe.
Microsoft boasts a record of paying dividends to shareholders for 19 consecutive years. Last month, it declared a quarterly dividend of $0.75 per share, payable to the shareholders on June 13. The stock offers an annualized dividend of $3.00 per share, which translates to a dividend yield of 0.72%.
Microsoft stock trades at forward earnings of 36.34x, lower than its cloud software rival, Salesforce (CRM), which trades at 39.5x.
Microsoft’s Q2 Earnings Beat Wall Street Projections
On Jan. 30, Microsoft reported fiscal Q2 earnings of $21.9 billion, or $2.93 per share, exceeding Wall Street expectations by 6.2%. Its revenue grew 18% year over year to $62 billion, marginally surpassing the Street's forecast. During the quarter, Microsoft closed its $68 billion U.S. acquisition of video game publisher Activision Blizzard, its largest deal ever.
For the current quarter, Microsoft anticipates productivity and business processes revenue growth to range between 10% and 12%, intelligent cloud revenue between 18% and 19%, and personal computing to be between 11% and 14%, driven by strong performance across various segments, including Azure and Office 365. MSFT is due to report fiscal Q3 earnings next Thursday, April 25.
Analysts tracking Microsoft expect fiscal 2024 earnings to reach $11.61 per share, up 18.4% year over year, and increase an additional 13.3% in fiscal 2025 to $13.15 per share.
What Do Analysts Expect for Microsoft Stock?
Microsoft stock has a consensus "Strong Buy" rating on Wall Street. Out of 37 analysts covering MSFT, 33 rate it as a "Strong Buy," while three suggest a "Moderate Buy," and one recommends a "Hold."
The average analyst price target of $455.63 indicates that most analysts aren’t quite as optimistic as Morgan Stanley, implying a comparatively modest upside potential of approximately 10.7% from current levels. The Street-high price target of $600, assigned by Truist Securities, suggests that the stock could rally as much as 45.7% over the longer term.
