Microsoft kicked off the second half of 2024 with a bang, with shares hitting new closing highs on Monday and Tuesday, and an intraday high Friday. Better still: They have plenty more room to run. Investors have been drawn to Microsoft for its early leadership in the fast-growing artificial intelligence space. Year-to-date Microsoft stock is up roughly 24%, compared to the S & P 500’s 15% advance. Excitement for Microsoft as an AI play, along with demand for its cloud computing business, show no signs of slowing. The company’s generative AI assistant is likely to accelerate a PC refresh cycle in 2024, driving even more sales of Microsoft’s devices and providing another catalyst for shares to go higher. Microsoft is “so big and so powerful that [the stock’s performance] is simply levered to its ability to dominate whatever it wants for both personal or enterprise software,” Jim Cramer said recently, citing the company’s massive AI investment in OpenAI, the start-up behind ChatGPT. Microsoft’s stake in OpenAI provides the firm with cutting-edge tech that’s integrated into offerings like its AI assistant Copilot and its cloud computing business. To be sure, the stock is not without challenges. Management has placed massive bets on AI — a reported $13 billion alone into OpenAI — and investors want to see how these investments will pay off. This means a major focus near-term will be on revenue growth for AI when the company reports its fiscal fourth-quarter earnings report later in July. Over the longer run, however, the company’s leadership and continued investment in all things AI should result in greater growth and push its stock beyond this week’s records. We raised our price target on Microsoft shares to $500 apiece from $450 after the company’s last earnings release in April, and currently have a 2 rating. That means we’d see any pullback in the stock as a possible opportunity to buy more. MSFT YTD mountain Microsoft (MSFT) year-to-date performance 1. The cloud One major reason for our optimism is that Microsoft’s Azure, the world’s second-largest cloud computing platform after Amazon , has become a key provider of artificial intelligence tools to other companies. More AI adoption means more developers turning to the highly lucrative cloud business. Revenue for Azure and other cloud services surged 31% year over year, according to fiscal third-quarter results . This handily beat analysts’ expectations of a 28% increase. Microsoft also issued an upbeat Azure revenue guide as more customers joined the platform. Following April’s quarterly print, management said the number of $100 million-plus Azure deals rose by 80%. 2. The PC refresh Another catalyst is the PC refresh cycle . In May, the company announced a new series of computers, Copilot+ PCs. These have advanced chips to run AI tools in Windows without draining the device’s battery life. Copilot+ PCs start at $999 apiece and hit the market last month. AI-infused devices like these have innovative features that will encourage more and more users to buy or upgrade their PCs. The result? An increase in sales for Microsoft’s personal computing division, which makes up around 25% of the company’s overall revenue. The rollout of Microsoft’s AI-powered devices comes four months after CEO Satya Nadella said, alongside fiscal Q3 earnings, “AI will become a first-class part of every PC” this year. 3. Copilot subscriptions Finally, the company can generate a nice recurring revenue stream from Microsoft 365′s Copilot AI add-on. Enterprise customers pay $30 per user, each month for a subscription service that grants them access to AI features across productivity apps like Word and Excel. There are cheaper plans for individuals such as Copilot Pro, which has a $20 monthly price tag. Wall Street analysts have been upbeat on Copilot. Piper Sandler previously forecasted that the tool could rake in more than $10 billion in revenue by 2026. (Jim Cramer’s Charitable Trust is long MSFT, AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Microsoft CEO Satya Nadella speaks during the Microsoft Build conference at Microsoft headquarters in Redmond, Washington, on May 21, 2024.
Jason Redmond | AFP | Getty Images
Microsoft kicked off the second half of 2024 with a bang, with shares hitting new closing highs on Monday and Tuesday, and an intraday high Friday. Better still: They have plenty more room to run.
link