It’s an understatement to say that Microsoft (NASDAQ:MSFT) stock benefitted from the market’s enthusiasm for all things artificial intelligence so far this year.
Thanks to this trend, and the tech giant’s massive exposure to it, MSFT stock is up by more than 45% since January.
As a result, MSFT has more than made up for its 2022 tech sell-off losses, and currently trades at all time highs. However, the question now is whether the stock, now nearing $350 per share, can continue to climb, thanks to the AI mega-trend.
With this in mind, let’s take a closer look at Microsoft, in two different ways. First, we’ll examine whether this tech mega-cap is at risk of topping out, or if hitting even loftier price levels is within reach in the near-term.
After that, we will dive into MSFT’s potential over a longer time horizon.
| MSFT | Microsoft | $346.62 |
Can MSFT Stock Keep Climbing in the Short Term?
Plenty of big tech firms are looking to capitalize on the generative AI trend, but Microsoft clearly has the first-mover advantage. If you recall, earlier this year, the software giant entered a game-changing partnership with OpenAI, the developer of ChatGPT.
Getting OpenAI’s technology as part of this deal, Microsoft has started integrating generative AI features into its products and applications. As I have stated previously, this will have an increasingly larger-impact on the company’s future performance.
Some may believe this is already accounted-for in the valuation of MSFT stock, following its nearly 50% run-up in price.
However, I wouldn’t rule out the possibility of further AI-related news, as well as continued overall excitement for the trend, enabling the stock to maintain its current momentum. A gradual move to prices well above $350 per share may be within reach in the near-term.
That said, it’s not as if Microsoft is unsinkable, despite its current strength. Growing optimism that inflation and interest rates will normalize has also helped the stock continue to hit new highs. Renewal of fear, uncertainty, and doubt about the macro picture could easily cause shares to lose some, if not all, of their momentum.
A Potential Winner for Long-Term Investors as Well
MSFT stock is not only an opportunity for short-term traders, looking to profit from trend-following. Long-term investors, focused more on fundamentals than technicals/sentiment, may be poised to profit by entering a buy-and-hold position in this name.
Although shares could take a breather, when (not if) “AI mania” peaks, it’s not as if all of the potential upside from the AI mega-trend has become priced into Microsoft.
There is not only the potential for shares to hold onto their year-to-date gains. There is ample room for the stock to add to these gains over the next few years. At least, based on sell-side earnings forecasts.
Thanks to the AI trend, plus a rebound in demand for Microsoft’s other product/service offerings, the company may be in for a massive jump in profitability.
The top end of earnings estimates call for earnings per share of $13.59 by fiscal year ending June 2025, and earnings topping $15 per share in the fiscal year after that.
A Strong Opportunity, No Matter Your Goals
If quarterly results over the next year or two point to Microsoft living up to the aforementioned earnings forecasts, expect it to be more than enough to justify a move to prices well above current levels.
That’s not all. As Goldman Sachs market analyst Tony Pasquariello recently put it, AI is shaping up to be a “winner-take-all game.” The earnings upside from Microsoft’s early moves into this area could be even greater than currently anticipated.
The company’s integration of AI into applications like Bing may garner the most attention, but in areas like cloud computing, the sky could truly be the limit for AI monetization potential.
Given this significant long-term runaway, alongside the potential for shares to continue performing well in the near-term, MSFT stock is still a strong opportunity, no matter your time horizon.
MSFT stock earns a B rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
