Microsoft (NASDAQ:MSFT) didn’t grab the headlines for a while, but in 2023 the company became top-of-mind when it invested in artificial intelligence technology specialist OpenAI. Today, Microsoft is applying AI functionality to solve a variety of problems. Hence, if you’re seeking greater AI market exposure in your portfolio, you might consider buying MSFT stock.
This doesn’t mean you have to load the boat on Microsoft shares. Moderation is the key, since a closer look may reveal that Microsoft isn’t trading at a screaming-buy valuation. So, let’s delve into the pros and cons of investing in Microsoft now.
MSFT Stock: The Good and the Not-so-Good
If there are any reasons to complain about Microsoft, the main issues would be the company’s valuation and dividend yield. First, sticklers for value might object to Microsoft’s GAAP-measured trailing 12-month price-to-earnings ratio of 32.76x. This is considerably higher than the sector median P/E ratio of 22.61x.
Also, forward annual dividend yield of 0.89% isn’t anything to write home about. So, investors who are focused on collecting passive income might understand why we’re assigning MSFT stock a “B” instead of an “A” grade.
Microsoft should appeal to investors with a strong conviction in the future of AI. Microsoft’s first-quarter fiscal 2024 results show revenue improvement in multiple business segments. These include Productivity and Business Processes (GAAP-measured revenue up 13% year over year), Intelligent Cloud (up 19%) and More Personal Computing (up 3%).
Microsoft embeds AI functionalities into a range of product/services. Some examples include Office Consumer products and cloud services (GAAP-measured revenue up 3% year over year), Microsoft Cloud services (up 24%) and Azure and other cloud services (up 29%) segments.
It’s safe to conclude that Microsoft’s investments in machine learning technology are benefiting the company’s top-line results.
Microsoft Teams Up for Another AI Use Case
Microsoft is teaming up with German industrial manufacturing giant Siemens (OTCMKTS:SIEGY) on a “joint project,” according to a Reuters report. Together, the two companies plan to use AI tech to “increase productivity and human-machine collaboration.”
Microsoft and Siemens will develop and deploy a product/service called the Siemens Industrial Copilot. This project will create AI-enhanced “copilots” or assistants to help workers at customers’ companies as they “design new products” and organize “production and maintenance.”
It’s certainly an ambitious collaboration. Siemens CEO Roland Busch declared, “This has the potential to revolutionize the way companies design, develop, manufacture, and operate.”
Maybe the Siemens Industrial Copilot will “revolutionize” Europe’s manufacturing sector, or maybe it won’t. That remains to be seen. It’s notable that Microsoft continues to discover and develop new real-world applications for AI technology.
MSFT Stock Is Worth a Look for Some Investors
Microsoft’s higher-than-average valuation and meager dividends might bother some investors. That’s not a problem, as no company is perfect and it’s fine to be skeptical about Microsoft.
Microsoft’s deep immersion into next-generation AI technology may appeal to some investors. Therefore, MSFT stock gets a “B” grade. You’re encouraged to add Microsoft to your watch list if you like what the company is doing with its AI-enhanced products and services.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
