Microsoft’s (NASDAQ:MSFT) recent investment in OpenAI has positioned the company as a top AI-related stock to buy, with plenty of near-term momentum. The company has adopted a well-rounded focus on its core business segments, with software and cloud operations providing the sort of cash flow to fund various high-growth endeavors. As the world demands more cloud resources, Microsoft’s AI and cloud capabilities position it for growth over the long term. This is central to my MSFT stock analysis.
Despite a modest dividend yield and a forward price-earnings ratio reflecting anticipation, Microsoft’s strategic investments make it a contender in the high-growth segments of the tech market that matter. Accordingly, for long-term investors looking for a no-brainer pick among the mega-cap names, here’s why I think MSFT stock should be on the list.
Strong Fundamentals
Driven by its Intelligent Cloud revenue with 20% increase, Microsoft certainly should be proud of its Q4 2023 earnings report. Azure AI customers surged, driving an impressive increase of 60% in MSFT stock post-report.
Over the past three months, Microsoft’s stock price has been a bit more volatile, though the trend remains headed in the right direction. The company’s return on equity (ROE) metric is indicative of the company’s health, and how shareholder capital is utilized. Microsoft boasts an impressive ROE of 28%, easily surpassing the industry average of 10%, fueling its 16% net income growth in the past five years. This positions the company well for future investment, even at these higher levels.
Microsoft’s three-year median payout ratio is 27%, indicating efficient reinvestment and a well-covered dividend. With over ten years of consistent dividend payments, Microsoft prioritizes profit-sharing with shareholders. Analysts project a steady future payout ratio of 22%, aligning with the company’s current ROE of 28%. This is a key part of my MSFT stock analysis.
Key Player in AI Space
Microsoft has embarked on a global AI initiative, pledging $5.6 billion for European expansion. Investments in Spain and Germany highlight the company’s strategic growth plans.
The clarification was valuable, mainly since the Spanish announcement primarily focused on data center construction, possibly to comply with EU data storage regulations. Brad Smith, the company’s president, announced the investment on social media, emphasizing Microsoft’s commitment to Spain’s security, development, and digital transformation. This follows Microsoft’s previous investment of $3.45 million in AI-related initiatives in Germany.
Indeed, U.S. tech giants, including Microsoft and Alphabet (NASDAQ:GOOG), aim to expand their AI presence in European governance and cybersecurity sectors. This investment wave may sway European politicians favoring local AI startups toward some of the more prominent global mega-cap names.
Don’t Hesitate to Buy MSFT Stock
Microsoft is a top stock choice among 910 hedge funds, with 306 such funds currently holding stakes, as of Q3 2023. Citi has endorsed Microsoft as a prime large-cap buy for 2024, estimating the company will report earnings per share just shy of $12. Praise is certainly due following Microsoft’s latest earnings report, notably for its AI ventures. Wedbush’s Dan Ives highlights Microsoft’s enterprise AI adoption potential, foreseeing substantial demand.
Microsoft remains a top stock that analysts, investors, and the market will continue to focus on in 2024. I don’t see many scenarios where this company will give up its leadership in its core segments. Accordingly, MSFT stock remains a buy-and-hold recommendation in my books. This concludes my MSFT stock analysis.
On the date of publication, Chris MacDonald did not have (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.