Software giant Microsoft (MSFT) has earned plaudits for its initiatives in artificial intelligence. And MSFT stock has risen as a result. But after a recent pullback, many investors may be wondering: Is Microsoft stock a buy right now?
XBill Gates and Paul Allen started Microsoft in 1975 at the dawn of the personal computer era to make PC operating system software. The company's Windows operating system came to dominate the PC landscape. Microsoft expanded over the years into productivity software, server software, internet services, video games, and PC hardware and accessories.
Current Chief Executive Satya Nadella took the reins of the Redmond, Wash.-based company in 2014 and led Microsoft full steam into cloud computing. The company's cloud offerings today include Azure infrastructure services, Office 365 productivity software and Dynamics enterprise software. Also, Microsoft owns LinkedIn, Skype and GitHub.
Recently, he has been promoting the company's advances in artificial intelligence.
Microsoft Trails Amazon In Cloud Computing
Microsoft is gaining on Amazon.com's (AMZN) Amazon Web Services in the market for cloud infrastructure services.
In the fourth quarter, Amazon Web Services had 31% market share, according to research firm Canalys. Microsoft was in second place with 26% market share. And Alphabet (GOOGL) unit Google Cloud was a distant third with 10% market share.
Overall enterprise spending on cloud infrastructure services reached $78.1 billion in the fourth quarter, up 19% year over year, Canalys said.
MSFT Stock News: OpenAI Partnership
Microsoft lately has been promoting its efforts to infuse generative artificial intelligence into its software and services.
In January 2023, Microsoft announced a new investment, reportedly worth $10 billion, in artificial intelligence startup OpenAI. OpenAI is the company behind text generator ChatGPT and image generator Dall-E. Microsoft previously had invested in OpenAI in 2019 and 2021.
Microsoft is providing its Azure cloud computing infrastructure for OpenAI. It also is adding OpenAI models to its consumer and enterprise software products.
In February 2023, Microsoft showed off its new Bing search engine and Edge web browser that use AI technology. Microsoft hopes the OpenAI-based technology can help Bing chip away at Google's dominance in the internet search market. MSFT stock jumped 4.2% on the news.
In March 2023, Microsoft announced that it is adding artificial intelligence tools to its popular Office productivity applications. It introduced a feature called Microsoft 365 Copilot. The Copilot feature uses AI to automate and simplify tasks and provide suggestions.
Microsoft Adds AI To More Products
On Nov. 15, Microsoft detailed its latest AI software tools and services at its Ignite conference. It also debuted a new artificial intelligence chip to run its Azure cloud infrastructure and lessen its reliance on AI chip leader Nvidia (NVDA).
Also, Microsoft has added AI-powered Copilot functionality to its cybersecurity offerings and its GitHub service for software developers.
On March 14, Microsoft announced the launch of Microsoft Copilot for Security. Microsoft stock popped 2.4% on the news.
Microsoft Business Challenges
Everything hasn't been smooth sailing for Microsoft lately though.
Microsoft made its Office Copilot services available to enterprise users starting Nov. 1. Microsoft is charging enterprise customers $30 a month for each user of Microsoft 365 Copilot. The pricing was much higher than expected and taken as a sign of the company's confidence in the usefulness of the product.
However, early reviews for the Office Copilot services were mixed.
Also, on Dec. 27, the New York Times (NYT) sued Microsoft and OpenAI for alleged copyright infringement. The Times said the technology firms exploited its content without permission to create their AI products, the Wall Street Journal reported. Tech companies creating foundational models for AI say the use of web content for training systems is "fair use" under copyright law.
And in November, Microsoft had to deal with a shakeup at OpenAI, which saw Chief Executive Sam Altman fired, only to return days later.
AI PCs, Copilot Super Bowl Ad
On Jan. 8, Microsoft participated in an event at CES 2024 to tout a new category of personal computers called AI PCs. Microsoft's Copilot was called a "marquee" feature of AI PCs.
On Jan. 16, Microsoft announced an expansion of its Copilot offerings to small businesses and consumers.
Microsoft even promoted its Copilot offerings in an advertisement during the Super Bowl.
On March 21, Microsoft introduced its first AI PCs — two Surface notebook computers. They are powered by the latest Intel (INTC) Core Ultra processors and sport a dedicated Copilot button for accessing the AI assistant. Microsoft stock rose 1% on the news.
Activision Blizzard Deal Completed
Meanwhile, Microsoft completed its purchase of video game publisher Activision Blizzard on Oct. 13. The acquisition brings to Microsoft such popular game franchises as "Call of Duty," "World of Warcraft," "Overwatch" and "Candy Crush."
Microsoft announced its deal to buy Activision in January 2022 for $68.7 billion in cash, but regulatory reviews delayed the purchase. The acquisition had faced antitrust challenges in the U.S. and U.K.
Concerns about whether Microsoft could complete the acquisition had been an overhang on MSFT stock.
In late January, Microsoft announced plans to lay off about 1,900 employees in its video game division, or 9% of the unit's head count. The layoffs reduced areas of overlap after the company's acquisition of Activision Blizzard.
Microsoft Stock Fundamental Analysis
Late on Jan. 30, Microsoft beat Wall Street's targets for its fiscal second quarter thanks to strong cloud computing business. But its sales guidance for the current quarter was a shade below estimates. MSFT stock fell 2.7% in the next trading session after the report.
Microsoft earned $2.93 a share on sales of $62.02 billion in the quarter ended Dec. 31. Analysts polled by FactSet had expected Microsoft earnings of $2.77 a share on sales of $61.1 billion. On a year-over-year basis, Microsoft earnings increased 33% while sales rose 18%.
For the current quarter, Microsoft forecast sales of $60 billion to $61 billion. The midpoint of $60.5 billion was below the consensus estimate of $61 billion for the March quarter, according to FactSet.
The next major catalyst for Microsoft stock could be the company's fiscal third-quarter earnings report, due on April 25.
MSFT Stock Technical Analysis
Microsoft stock has an IBD Composite Rating of 87 out of 99, according to IBD Stock Checkup. IBD's Composite Rating combines five separate proprietary rankings into one easy-to-use number. The best growth stocks have a Composite Rating of 90 or better.
MSFT stock has an IBD Relative Strength Rating of 83 out of 99. The Relative Strength rating shows how a stock's price performance stacks up against all other stocks over the last 52 weeks. The best growth stocks typically have RS Ratings of at least 80.
Also, Microsoft ranks first out of five stocks in IBD's Computer Software-Desktop industry group. But the desktop software group ranks No. 194 out of 197 industry groups that IBD tracks. Choosing highly rated stocks from leading industry groups in a confirmed stock market uptrend generally increases your chances of making profits in growth stocks.
Microsoft stock is on two IBD lists: Long-Term Leaders and Tech Leaders.
In addition, Microsoft is one of the Magnificent Seven stocks.
Plus, Microsoft ranked first on IBD's 100 Best ESG Companies For 2023. ESG is short for "environmental, social and governance," issues of importance for many investors.
Is Microsoft Stock A Buy Right Now?
No, Microsoft stock is not a buy right now.
On Jan. 11, MSFT stock broke out of a flat base at a buy point of 384.30, according to IBD MarketSurge charts. It notched an all-time high of 430.82 on March 21.
Then, it trended sideways for several weeks, but recently fell below its 50-day moving average line amid a sell-off in AI stocks.
Microsoft stock will need to form a new base in the right market conditions before setting another potential buy point.
Microsoft stock has an IBD Accumulation/Distribution Rating of D-. That rating indicates institutional selling of MSFT stock.
Keep an eye on the overall stock market. If the market turns south, don't try to fight the general stock market direction. Check out IBD's Big Picture column for the current market direction.
To find the best stocks to buy or watch, check out IBD Stock Lists. Also consult IBD's Leaderboard, MarketSurge and SwingTrader platforms.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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