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2 days ago
Microsoft Rally in Trouble
By: 24/7 Wall St. | June 17, 2024
• Microsoft Corp.’s (NASDAQ: MSFT) perceived lead in artificial intelligence may be slipping away.
Among the largest tech companies, Microsoft Corp. (NASDAQ: MSFT) has been viewed as the artificial intelligence (AI) leader because of its huge investment in OpenAI, totaling $15 billion over the past two years. This lets it flank rivals, particularly Alphabet, Amazon, and Apple. However, its stock price has stumbled in the past few months. It is now up 17% year to date, compared to an increase of 13% in the S&P 500. Amazon.com Inc. (NASDAQ: AMZN) is up 20% and Alphabet Inc. (NASDAQ: GOOGL) by 27%.
Microsoft’s primary trouble is its attempt to productize its AI advantage. Some of its work has caused privacy concerns. Image generation results have been weaker than expectations. Copyright legal challenges could be a long-term concern. The company pulled its AI Recall products. CNBC reported, “Industry experts have expressed concern over the potential for hackers to develop tools that can retrieve user information.”
In short, Microsoft’s head start, created by its early push into AI, has started to vanish.
Google’s AI products seem more mundane than Microsoft’s. However, they work. Google’s AI products focus on daily tasks. This included enhanced search results, text and speech translation, speech recognition convertible to text, and image enhancement. The most important of these short term may be better search results since search is a huge part of Google’s revenue.
Microsoft’s lead was supposed to leave Apple in the dust. The iPhone maker did not release any major iOS or hardware products based on AI—until last week. That impressed the market, and Apple Inc. (NASDAQ: AAPL) shares reached an all-time high.
Investors may think that Microsoft let its AI advantages slip away.
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4 weeks ago
Microsoft debuts 'Copilot+' PCs with AI features
By: Reuters | May 20, 2024
Microsoft MSFT on Monday debuted a new category of personal computers with AI features as it rushes to build the emerging technology into products across its business and compete with Alphabet GOOG and Apple AAPL.
At an event on its campus in Redmond, Washington, Chief Executive Satya Nadella introduced what Microsoft calls "Copilot+" PCs, saying that it and a range of manufacturers would sell them, including Acer 2353 and Asustek Computer 2357.
Microsoft launched the laptops as its shares trade near record highs following a Wall Street rally driven by expectations that AI will fuel strong profit growth for the company and its Big Tech rivals.
Able to handle more artificial-intelligence tasks without calling on cloud data centers, the new computers will start at $1,000 and begin shipping on June 18.
Microsoft showed a feature called "Recall," which will help users find files and other data that they have seen on their PC, even if it was a tab opened in a Web browser. The company also demonstrated its Copilot voice assistant acting as a real-time virtual coach to a user playing the "Minecraft" video game.
Yusuf Mehdi, who heads up consumer marketing for Microsoft, said the company expects that 50 million AI PCs will be purchased over the next year. At the press event, he said faster AI assistants that run directly on a PC will be "the most compelling reason to upgrade your PC in a long time."
Global PC shipments dipped about 15% to 242 million last year, according to research firm Gartner, which suggests Microsoft expects the new category of computers to account for around one-fifth of all PCs sold.
"People just need to be convinced that the device experience alone justifies this entirely new category of Copilot+ machines,” said analyst Ben Bajarin of Creative Strategies.
Microsoft's new "Copilot+" computer marketing category that highlights AI features is reminiscent of the "Ultrabook" category of thin-form Windows laptops that Intel promoted with PC manufacturers in 2011 to compete against Apple's MacBook Air.
Microsoft executives also said that GPT-4o, the latest technology from ChatGPT maker OpenAI, will "soon" be available as part of Microsoft Copilot.
Microsoft also introduced a new generation of its own Surface Pro tablet and Surface Laptop that feature Qualcomm QCOM chips based on Arm Holdings' ARM, ARM architecture. The company also introduced a technology called Prism that will help software written for Intel and AMD chips run on chips made with Arm technology.
Microsoft showed its new devices in action against an Apple device, showing photo editing software from Adobe ADBE running faster on the Microsoft device. Apple earlier this month showed a new AI-focused chip that analysts expect to be used in future laptops.
After Intel's processors dominated the PC market for decades, Qualcomm and other makers of lower-power Arm components have tried to compete in the Windows-PC market.
The Qualcomm Snapdragon X Elite chips include a so-called neural processing unit that is designed to accelerate AI-focused applications, such as Microsoft's Copilot software.
Microsoft held the product event a day before the start of its annual developer conference.
Microsoft aims to extend its early advantage in the race to produce AI tools that consumers are willing to pay for. Its partnership with OpenAI allowed it to jump ahead of Alphabet as other Big Tech companies race to dominate the emerging field.
Last week, OpenAI and Alphabet's Google showcased dueling AI technologies that can respond via voice in real time and be interrupted, both hallmarks of realistic voice conversations that AI voice assistants have found challenging. Google also announced it was rolling out several generative AI features to its lucrative search engine.
The PC industry has been under increasing pressure from Apple since the company launched its custom chips based on designs from Arm and ditched Intel's processors. The Apple-designed processors have given Mac computers superior battery life and speedier performance than rivals' chips that use more energy.
Microsoft tapped Qualcomm to lead the effort to move the Windows operating system to Arm's chip designs in 2016. Qualcomm has exclusivity on Microsoft Windows devices that expires this year. Other chip designers such as Nvidia NVDA have efforts under way to make their own Arm-based PC chips, Reuters has previously reported.
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1 month ago
Missed Out on Nvidia's Run-Up? My Best Artificial Intelligence (AI) Stock to Buy and Hold
By: The Motley Fool | May 18, 2024
KEY POINTS
• Nvidia stock has become expensive following its tremendous run on the stock market in the past year.
• Microsoft is trading at a relatively attractive valuation, especially considering that its growth could accelerate thanks to AI.
• Microsoft has multiple AI-related catalysts that could help it beat analysts' expectations in the long run and deliver impressive stock price gains.
Investors looking for an alternative to Nvidia can consider buying this AI stock before it soars higher.
Nvidia (NVDA) has been one of the hottest stocks on the market in recent months, and that's not surprising, as the company has played a critical role in the artificial intelligence (AI) revolution.
Companies in the race to develop and deploy AI applications have been turning to Nvidia's graphics processing units (GPUs) to utilize the parallel computational power of its chips so that they can train large language models (LLMs) such as ChatGPT. As it turns out, the demand for Nvidia's GPUs has been so strong that the company has been finding it difficult to meet the end-market demand, leading to long waiting periods.
The good news is that Nvidia has been boosting its production capacity, and that explains why it is expected to deliver another year of solid growth in fiscal 2025 (which has just begun). Its top line is expected to grow nearly 84% this fiscal year to $112 billion, while the bottom line is expected to jump 91% to $24.87 per share. All this explains why investors have been piling into Nvidia stock, which has already gained more than 82% in 2024.
Nvidia looks well placed to justify its expensive trailing earnings multiple of 75, considering the potential growth it could deliver. The sharp increase in its earnings going forward is evident from a much lower forward price-to-earnings ratio of 37. However, investors who have missed Nvidia's terrific run-up and are wary of paying a rich earnings multiple can consider taking a closer look at Microsoft (MSFT -0.18%).
Just like Nvidia, Microsoft is also a key player in the AI market, and it can be bought at a reasonable valuation right now. Here's why savvy investors should consider doing that right away.
Microsoft stock is attractively valued, and AI is positively impacting its growth
Shares of Microsoft have gained only 10% so far this year. This explains why the stock can still be bought at a relatively reasonable earnings multiple of about 35, which is much lower than Nvidia's multiple. Microsoft's forward earnings multiple of 31 also represents a discount to that of Nvidia.
Of course, Microsoft isn't growing as rapidly as Nvidia, but it has been consistently beating Wall Street's earnings expectations in recent quarters, and its growth has been accelerating.
For instance, in the third quarter of fiscal 2024 (which ended on March 31), Microsoft's revenue increased 17% year over year to $61.9 billion. That was a nice acceleration over the 7% revenue growth the company clocked in the same period last year.
Additionally, Microsoft's earnings growth also improved to 20% year over year in the previous quarter, from 10% in the year-ago period. AI is playing a key role in this acceleration, as Microsoft management noted on the latest earnings conference call. CEO Satya Nadella remarked that the company's Azure cloud platform "took share as customers use our platforms and tools to build their own AI solutions."
More specifically, AI drove 7 percentage points worth of growth for Microsoft's Azure cloud business last quarter out of the segment's year-over-year growth of 31%. The growth could have been stronger had Microsoft been able to meet all the AI-related demand for cloud services, but the company said that demand has been higher than supply.
This explains why Microsoft has been ramping up its spending on cloud AI infrastructure across the globe in countries such as Japan, France, Indonesia, Malaysia, and the U.S. Even better, recent reports indicate that the tech giant could spend $100 billion on building a generative AI supercomputer through 2028. As such, Microsoft is setting itself up to make the most of the booming demand for cloud AI services in the long run.
According to a third-party estimate, the cloud AI market was worth an estimated $43 billion in 2022. The market is expected to post 36% annual growth through 2032 and generate a whopping $887 billion in annual revenue. Microsoft has generated just over $100 billion in revenue from its Intelligent Cloud division business in the past year, and the incremental growth opportunity in the cloud AI market indicates that it has a lot of room to grow in this space.
Throw in the potential AI-related gains that Microsoft could achieve in the AI-enabled personal computer and workplace productivity markets, and it won't be surprising to see the company's growth accelerating further in the long run.
Robust earnings growth points toward a healthy stock price upside
Analysts are expecting Microsoft's earnings to increase at an annual rate of 16% over the next five years, which would be a slowdown compared to its 20% annual earnings growth in the past five years. However, observers have already seen that Microsoft's bottom-line growth is accelerating thanks to AI. So, it won't be surprising to see the company's earnings growing at a faster pace in the future.
Assuming Microsoft manages to get an annual earnings growth rate of 25% over the next five years, its earnings could hit $29.93 per share in fiscal 2028 (using fiscal 2023 earnings of $9.81 per share as the base). Multiplying the projected earnings with Microsoft's five-year forward earnings of 29 points toward a stock price of $868 after five years -- a jump of 110% from current levels.
But if the market decides to reward Microsoft with a higher valuation or the company delivers stronger earnings growth, this AI stock could deliver much stronger gains. That's why investors who missed the Nvidia train should consider jumping onto Microsoft stock before it steps on the gas.
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2 months ago
Microsoft Stock Has Support Ahead of Earnings
By: Schaeffer's Investment Research | April 23, 2024
• MSFT is bouncing off support after last week's slide
• MSFT has pulled back a historically bullish trendline
Microsoft Corp (NASDAQ:MSFT) is up 1.7% at $407.61 today, bouncing off familiar support at the $400 level. The equity is one of the 'Magnificent Seven' stocks that staged a sharp pullback last week as Big Tech slid.
MSFT is also seeing support at a historically bullish trendline, its 100-day moving average. Per Schaeffer's Senior Quantitative Analyst Rocky White, the security has come within one standard deviation of this moving average five times over the past three years, after which it was higher one month later 80% of the time, averaging a 7.5% return.
There will likely be some volatility ahead, however, as the tech giant reports earnings after the close Thursday, April 25. The stock has a mixed history of post-earnings sessions over the last two years, averaging a 4.6% swing, regardless of direction. This time around the options pits are pricing in a 6.3% move.
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3 months ago
Here's Why Microsoft Will Likely Announce a Stock Split
By: 24/7 Wall St. | April 1, 2024
Just about 30% of the S&P 500 total market capitalization is made up of “The Magnificent 7”: Nvidia (NASDAQ: NVDA), Alphabet (NASDAQ: GOOG), Amazon (NASDAQ: AMZN), META Platforms (NASDAQ: META), Apple (NASDAQ: AAPL), Tesla (NASDAQ: TSLA), and Microsoft (NASDAQ: MSFT).
Microsoft (NASDAQ: MSFT) has both historical and fundamental premises to justify a forward split announcement this year. Forward splits are 99% of the time a popular event in the eyes of both current and future shareholders. Mechanically, it is equivalent to exchanging, say, two $5.00 bills for a $10.00 bill. The value remains unchanged. However, when it comes to stocks, there are additional advantages, as we will see below:
Market Perceptions
For decades, Microsoft’s Windows OS has dominated the workplace computer market, and, to a lesser extent, the personal computer market. While Apple’s Mac owners are more loyal and won’t hesitate to tout the superiority of Apple products, the fact remains that the availability of Windows in a wide variety of different manufacturers’ hardware configurations makes it more ubiquitous, cost effective, and easier to customize.
As such, Microsoft has been able to continue capitalizing on this advantage, and managed to keep loyal shareholders with its consistency in earnings and with dividends, which were first announced back in 2003. Its recent stock price gains have outpaced rival Apple to the point where Microsoft’s $3 trillion+ market cap is now hundreds of billions over Apple’s $2.6 trillion.
New Revenue Streams and Breakthroughs
Microsoft launched its successful Azure cloud computing platform in 2010, which created a strong new recurring revenue stream for the company in data storage subscription fees.
However, Microsoft’s latest foray into Artificial Intelligence may prove to be its biggest advanced leap since introducing DOS for the personal computer. Microsoft has invested $13 billion into OpenAI and the engine for ChatGPT to easily operate on Azure. As a result, Azure AI is exploding, and new subscribers are fueling the exponential development of a host of new applications and software products, including AI boosts for Windows 365.
Lastly, Microsoft closed its acquisition of video game company Activision Blizzard in Q4 2023. In addition to supplying popular games like Call of Duty and World of Warcraft for the Microsoft Xbox gaming system, it now owns the intellectual property rights, which would ostensibly include added merchandising, game sequels, and film and television spin-offs.
History and Ticket Price of Admission
Although low priced stocks have been derisively dubbed “penny-stocks” by analysts and sophisticated investors, they remain popular with individual investors. The simple reason is that for some investors with limited capital to allocate for each stock position they elect to take, getting a meaningful number of shares that fits within budget is a crucial factor. This is especially true if they are trying to diversify and buy positions in several companies in different industrial sectors for risk mitigation purposes. Buying 100 shares of a $20 stock carries more upside justification potential than buying 10 shares of a $200 stock.
From its first forward stock split in 1987 to the early 2000s, Microsoft has had 9 stock splits, with the last one in 2008. Its present market price of over $400 is high, and the underlying fundamentals for its AI and other prospects are certainly rosy enough to garner hordes of new investors who would welcome adding Microsoft stock to their portfolios if it was under $100.
So, is a 10-for-1 forward stock split in the cards for Microsoft? While no announcements have been made as of yet, the market and business conditions certainly make a strong case for it.
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3 months ago
Microsoft Insider Trading Alert: Microsoft's Chief People Officer, Kathleen Hogan, sold 22,000 $MSFT shares for a total value of $8.8 million while the company's Chief Communication Officer sold $4 million worth.
By: Barchart | March 15, 2024
• Microsoft Insider Trading Alert
Microsoft's Chief People Officer, Kathleen Hogan, sold 22,000 $MSFT shares for a total value of $8.8 million while the company's Chief Communication Officer sold $4 million worth.
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