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Microsoft’s generative artificial intelligence prospects are impressive. But the stock has more to offer investors than just the new technology. Jim Cramer said Microsoft shares could fall Wednesday — and of all the mega-cap tech stocks, this club name is the one to buy. Microsoft closed at an all-time high of $467 on July 5. But then it started to drop almost immediately. The company didn’t get any help from its July 30 earnings report and hit a recent low during the August 5 market decline. The stock’s subsequent recovery stalled at the end of last month and turned lower again. Exacerbated by Tuesday’s technical wreck, shares were back to their August 2 levels on Wednesday, at $408 each. MSFT YTD Mountain Microsoft YTD Wells Fargo is more aligned with Jim, pointing to three “underappreciated levers” — search, cybersecurity and enterprise software — that could contribute to Microsoft’s overall revenue growth. The analysts added the stock to their Signature Picks list, maintaining a Buy equivalent overweight and a $515 price target. The Club has a $500 price target for the stock. Microsoft’s search engine Bing could take more market share from Alphabet, Wells Fargo said in a research note on Wednesday, citing the loss of last month’s antitrust case involving exclusivity deals with device makers such as Apple. If Google Search is no longer the iPhone’s default search engine, more customers could come to Microsoft. To be fair, the search function at Microsoft is small compared to Alphabet. According to web data provider StatCounter, Google Search has a market share of about 88% in the US, compared to just over 7% for Bing. The numbers worldwide are even more skewed in Google’s favor. Wells Fargo also highlighted Microsoft’s cybersecurity activities. “Microsoft has quietly become the world’s largest cybersecurity vendor and continues to gain market share in adjacent areas,” the analysts wrote. Like others in the industry, Microsoft’s cybersecurity business may continue to win over large corporations as customers as the threat of hacks and breaches remains high. Microsoft received some criticism when July’s CrowdStrike upgrade caused a major global IT outage. In 2023, Microsoft CEO Satya Nadella said the company’s cybersecurity business had surpassed $20 billion in revenue in a twelve-month period. Microsoft’s customer relations software suite, called Dynamics, could also see more benefits, Wells Fargo said. The analysts see ‘significant cross-sell potential’. That’s because the company already has a huge customer base through its cloud computing business Azure and productivity apps included in Office. In short, these three undervalued areas are encouraging, even if Microsoft’s generative AI efforts are still crucial to the Club’s investment thesis. While Azure’s revenue exceeded expectations last quarter, we still expect a recovery in the second half of the year given management’s optimistic commentary around the outlook. Wall Street firms seem to agree with us. In addition to Wells Fargo’s bullish stance, Piper Sandler added Microsoft to its high-conviction buy list on Wednesday because of these AI tailwinds. (Jim Cramer’s Charitable Trust is long MSFT, GOOGL, AAPL, NVDA. See here for a full list of the stocks.) As a CNBC Investing Club subscriber with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charity’s portfolio. If Jim has talked about a stock on CNBC TV, he will wait 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. No fiduciary obligation or duty exists nor is it created by your receipt of any information provided in connection with the Investment Club. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Executive Chairman and CEO of Microsoft Corporation Satya Nadella speaks during the “Microsoft Build: AI Day” event in Bangkok, Thailand, May 1, 2024.
Chalinee Thirasupa | Reuters
Microsoft’s The prospects for generative artificial intelligence are impressive. But the stock has more to offer investors than just the new technology.
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