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With the U.S. presidential election and November Federal Reserve meeting looming, this week is anticipated to be volatile, prompting investors to seek safe-haven assets like gold (GCZ24). However, the long-term potential of dividend-paying tech stocks like Microsoft Corporation (MSFT) shouldn’t be underestimated amid the market uncertainty.
Positioned to capitalize on the booming cloud computing and AI trends, software giant Microsoft combines a strong financial foundation with innovative prowess, making it an attractive option for those seeking both safety and growth in their portfolios.
Yet, despite posting solid fiscal Q1 2025 earnings on Oct. 30 that surpassed Wall Street expectations, MSFT stock stumbled. Investors were rattled by the company’s cautious forward guidance, causing shares to dip in the following session. While mixed reviews followed, most analysts remain optimistic about Microsoft’s long-term prospects, estimating double-digit upsides.
So, with this buy-the-dip scenario on the table, should investors dive in now or wait for a better entry point? Let's find out.
About Microsoft Stock
Based in Redmond, Washington, Microsoft Corporation (MSFT) is a tech titan with a staggering $3.1 trillion market cap. Renowned for its innovative PC software and robust cloud solutions through Azure, Microsoft continues to lead the charge in both enterprise and personal technology, from pioneering operating systems to enhancing productivity with artificial intelligence (AI).
This mega-cap tech stock has faced a downturn, currently sitting 12.8% below its record high of $468.35, reached on July 1. This pullback was intensified by the CrowdStrike outage in mid-July and mixed signals from its recent Q1 earnings report. Over the past six months, MSFT has barely budged, showing only marginal gains, while over the past 52 weeks, it rallied 16%.
Microsoft’s valuation has always reflected its heavyweight status, and it is no different now. Trading at 31.32 times forward earnings, the stock carries a premium price tag - higher than some tech peers, yet right on par with other trillion-dollar titans.
Plus, Microsoft’s average 5-year multiple shows it consistently commands a premium, a nod to its enduring market dominance and investors’ confidence in its growth story. Therefore, for those betting on this big tech’s long game, Microsoft’s higher valuation is the price of consistency.
Microsoft Dips on Trimmed Guidance
Microsoft proved its mettle in its Q1 earnings report released on Oct. 30 after the market close, delivering results that exceeded Wall Street's expectations on both revenue and earnings. The tech titan's net revenue climbed 16% year over year to $65.6 billion, while EPS rose by 10% to $3.30, surpassing forecasts by 7.1%. Operating income hit $30.6 billion, resulting in a robust margin of approximately 46.6%, up 14% from the previous year.
Leading the charge was Microsoft's Intelligent Cloud business, with sales surging 20% to $24.1 billion. The Azure cloud infrastructure segment was a key player, boasting a remarkable 34% sales increase. With Azure Arc now serving over 39,000 customers globally - an impressive 80% rise year-over-year - Microsoft is solidifying its cloud presence, backed by data centers in over 60 regions.
The company is also ramping up investments in cloud and AI infrastructure across Brazil, Italy, Mexico, and Sweden, all while innovating with next-gen AI technology. By introducing cutting-edge AI accelerators and becoming the first cloud provider to launch Nvidia’s (NVDA) Blackwell system, Microsoft is positioning itself at the forefront of the AI race.
Its total cash and short-term investments amounted to $78.4 billion, while long-term debt (including the current portion) came in at $42.86 billion. Additionally, Microsoft returned approximately $9 billion through dividends and share buybacks in Q1.
Microsoft had a solid quarter, but management's forward guidance fell short of Wall Street’s high hopes. For the current quarter, Azure growth is projected to decelerate between 31% to 32%, down from 34%. The Intelligent Cloud segment is anticipated to have an 18% to 20% year-over-year revenue bump, while AI sales are expected to remain steady, instead of the sequential growth investors were craving. This cautious outlook and increased spending on AI infrastructure weighed on Microsoft’s stock after earnings.
Analysts tracking Microsoft predict fiscal 2025 revenue to be around $278.3 billion, with EPS projected to rise 9.8% to $12.75. The company’s bottom line is further projected to surge another 14.3% annually to $14.8.
Microsoft’s Dividend History
Microsoft’s dividend story began in 2003 when the tech giant made its first payout to shareholders. Since then, it has been a steady climb. This September, Microsoft kept up the tradition, announcing a fresh dividend bump that shows it is still serious about rewarding its investors.
On Sept. 16, Microsoft declared a quarterly dividend of $0.83 per share - a 10% boost over last quarter’s payout. This pushes the annualized dividend to $3.32 per share, yielding 0.81%. With a payout ratio of just 24.7%, Microsoft has the flexibility to keep these dividends flowing while investing in innovation.
With nearly 20 years of dividend hikes, Microsoft is on the path to future Dividend Aristocrat status - a title reserved for S&P 500 Index ($SPX) companies that raise dividends for 25 consecutive years. And that’s not all; the board approved a $60 billion share buyback program, signaling more shareholder-friendly moves ahead.
What Do Analysts Expect for Microsoft Stock?
Microsoft may be treading water for now, but Wall Street sees more than meets the eye. Barclays analysts led by Raimo Lenschow reaffirmed an “Overweight” stance with a $475 price target after earnings, saying that they expect a stronger showing in the second half of 2025.
JPMorgan’s Mark Murphy remains bullish, maintaining an “Overweight” rating, albeit with a slight price-target cut to $465. He expects Azure’s growth to pick up in the second half of fiscal 2025 once AI capacity ramps up, and noted that Q2 revenue guidance dipped below Street consensus mainly in consumer segments like gaming and devices - not core drivers for Microsoft’s cloud future.
Evercore’s Kirk Materne called the post-earnings dip a buying opportunity, emphasizing that Microsoft’s grip on the cloud and AI markets remains solid, while Wedbush’s Daniel Ives believes Azure’s growth will pick up in late 2025, encouraging strong buying on any share weakness now.
Microsoft, it seems, is one to hold tight and wait for brighter catalysts on the horizon.
MSFT stock has a consensus “Strong Buy” rating overall. Among the 39 analysts in coverage, 33 suggest a “Strong Buy,” three advise a “Moderate Buy,” and the remaining three analysts recommend a “Hold.”
The mean price target for MSFT is $504.03, indicating an expected upside potential of 23.4% from Monday’s close. The Street-high target price of $600 implies the stock could rally as much as 46.9%.
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