Dividend Stocks

Is the AI Rally Over for Microsoft (MSFT) Stock?

Microsoft (NASDAQ:MSFT) provided revenue guidance for the current quarter that missed analysts’ average estimates. This sent MSFT stock down over 3% in early trading today. Moreover, investors were disappointed by the software giant’s admission that it would need to invest significantly more money going forward in its artificial intelligence (AI) and cloud businesses.

Also disappointing to investors is the company’s admission that it would need more time to incorporate its AI tech into its portfolio.

Microsoft’s Results and Guidance

MSFT reported fiscal Q4 revenue of $56.2 billion, versus analysts’ average estimate of $55.44 billion. The company’s earnings per share came in at $2.69, above the mean outlook of $2.55.

The company projected that its Q1 top line would be between $53.8 billion and $54.8 billion. The midpoint of the guidance range is slightly below analysts’ mean estimate.

To meet increased demand for its AI capabilities and support the expansion of its cloud business, MSFT  will have to “accelerate investment in [its] cloud infrastructure,” CFO Amy Hood reported.

But many companies are eager to adopt MSFT’s AI-powered offerings, CEO Satya Nadella stated.

“Organizations are asking… how fast… they can apply this next generation of AI to address the biggest opportunities and challenges they face – safely and responsibly.”

MSFT Stock: Analysts’ Reactions

Bank of America and Goldman Sachs reacted favorably to the news. Microsoft has a competitive advantage when it comes to AI-powered products, and that catalyst should boost its financial results going forward, Bank of America believes.

For its part, Goldman Sachs expects the company’s investments to cause its revenue growth to accelerate and lift its profit margins. Goldman Sachs analysts also recently put a $400 price target on MSFT stock.

In the last month heading into today, the shares have climbed 4.5%, while MSFT stock has soared 42% so far this year.

On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

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