Analyzing Microsoft (MSFT) Gains: 2024 Buy or Sell Opportunity?

Can Microsoft’s (MSFT) optimistic outlook and an early lead in the AI market translate into a buying opportunity for investors? Let’s look at its financial metrics to gauge its prospects…

Software industry powerhouse Microsoft Corporation (MSFT) is seemingly capitalizing on its cloud business, which buoyed up the company’s top and bottom line in the last reported quarter (fiscal 2024 first quarter that ended September 30). The company reported revenue and EPS of $56.52 billion and $2.99, beating the analyst estimates of $54.50 billion and $2.65, respectively.

The Azure segment’s revenue increased by 29%, higher than the 26% consensus estimate. Moreover, MSFT’s finance chief, Amy Hood, expects fiscal second-quarter revenue to come in between $60.4 billion and $61.4 billion, in line with analysts’ expected figure of $60.9 billion.

The company’s long-term prospects also appear bright due to its significant interest and investments in Artificial Intelligence (AI). MSFT has achieved an early lead in the lucrative AI market. “This is a clear positive as right now Microsoft has the only game in town around a full AI platform,” said Wedbush Securities analyst Dan Ives.

Amid such a conducive outlook, let’s look at the trends of MSFT’s key financial metrics to understand why the stock could be a solid buy now.

Examining Microsoft's Financial Performance: Noteworthy Trends & Analysts' Projections

The trailing-12-month net income of MSFT has displayed a generally increasing trend over the given period, with some fluctuations. Below is a summary of the trend:

  • As of December 31, 2020, MSFT’s net income stood at $51.31 billion.
  • There was substantial growth in the first quarter of 2021 when net income increased to $56.02 billion as of March 31, 2021.
  • This growth continued with another increase to $61.27 billion by the end of June 2021 and further in the third quarter of 2021 with a net income of $67.88 billion by September 30, 2021.
  • By the end of 2021, the net income reached its peak for the year at $71.19 billion on December 31, 2021.
  • The steady growth continued into 2022, with new peaks recorded in the first two quarters: $72.46 billion at the end of March and $72.74 billion at the end of June.
  • However, the third quarter of 2022 saw a decline to a net income of $69.79 billion, and this downward trajectory continued until the close of the year with a net income of $67.45 billion on December 31, 2022.
  • Nonetheless, a rebound became visible from the start of 2023. By the end of March, the net income had risen slightly to $69.02 billion, with even larger increases to follow. Both June 30, with a net income of $72.36 billion, and September 30, with a net income of $77.10 billion, represented new record highs for MSFT.

Over the course of the dataset, from December 31, 2020, to September 30, 2023, MSFT experienced a growth of approximately 50.01% in its net income.

The trailing-12-month revenue of MSFT has seen a steady upward trend from December 31, 2020, to September 30, 2023. Here are the key points showing the progression of MSFT's revenue over that period:

  • On December 31, 2020, its revenue started at $153.28 billion.
  • There was an increase to $159.97 billion by March 31, 2021.
  • By June 30, 2022, its revenue had further risen to $198.27 billion.
  • On December 31, 2022, MSFT had a minor increase in revenue to $204.09 billion.
  • The revenue experienced its largest growth in recent times, rising to $218.31 billion by September 30, 2023.

Calculating from the first value in December 2020 to the last value in September 2023, there is an approximately 42.4% increase in revenue. It is important to note that this growth, while generally consistent, was not strictly linear and showed some fluctuations, with slight variations in the growth rate observed in the fourth quarter of 2022. Overall, MSFT has demonstrated a clear and consistent upward trend in its revenue throughout this period.

The reported Return On Sales (ROS) of MSFT displays a fluctuating pattern over the three-year span from 2020 to 2023.

  • In December 2020, the ROS stood at 0.41.
  • The first quarter of 2021 witnessed a rise in the ROS to 0.42, which modestly increased to 0.44 by the end of the year.
  • However, in 2022, the ROS saw a downward trend, starting from 0.44 in March, falling to 0.43 by mid-year and further decreasing to 0.41 by the end of the year.
  • Despite the downslide in 2022, the first nine months of 2023 demonstrated a resurgence in MSFT's ROS from 0.42 in March to 0.44 in September.

Overall, between the starting date (December 2020) and the most recent figure (September 2023), there has been a growth of approximately 0.03 or 3% in the company's ROS. The data suggest that although MSFT’s ROS experienced some volatility throughout this period, the general trend showed recuperation in later stages, emphasizing the firm's resilience against changes in market dynamics.

The analyst price target for MSFT, as reported by analysts over time, illustrates various fluctuations, with a clear trend toward increase.

  • Starting at a value of $360 in November 2021, it saw a slight increment, reaching $364 at the end of March 2022.
  • A brief downward phase followed this ascension, where the analyst price target experienced a drop to $328.53 by September 2022. This decline evolved into a substantial fall, hitting a low point at $282.03 in February 2023, which was an approximate decrease of 22% from the starting value.
  • However, a remarkable rebound occurred immediately, and the target bounced back to a significant $400 in August 2023 and remained the same till October 2023.
  • The last recorded data shows the price target at an all-time high of $413 at the end of December 2023, demonstrating a positive growth rate of about 15% from the original value.
  • Emphasizing the more recent data, the latter part of 2023 ended with a steady upturn. Comparing the values from February 2023, when the target sat at a relatively low $282, and December 2023, with its highest value at $413, it's noteworthy that there's an approximate increase of 47%.

These data points indicate a potentially favorable outlook toward MSFT following the early 2023 dip and pointing towards increasing confidence from analysts, particularly within the latter months of 2023.

Six-Month Analysis of Microsoft's Share Price Fluctuations: A General Upward Trend

Upon reviewing the data regarding the share prices of MSFT over a span of six months from June to December 2023, we note the following:

  • In June 2023, MSFT was priced at $335.06.
  • The price increased to $350.89 by July 21 but showed a mildly inconsistent trend with minor fluctuations throughout the month; it ended at $340.49 by July 28.
  • This was followed by a general decrease in August, with the price falling to $320.21 by August 18. It slightly picked up by the end of the month, ending at $323.29.
  • There was a relatively steady growth in September, and the price peaked at $335.39 in the middle of the month. However, a decline followed, and by the end of September, the share price stood at $314.01.
  • October showed recovery and a generally upward trend, ending at $333.39 by the month's end.
  • Significant and consistent growth was observed in November, with the price rising to an impressive $375.90 by November 24.
  • December witnessed slight fluctuations but maintained around the same level as the previous month's end, ending the last trading session at $373.54 by December 21.

Overall, the data suggests a fluctuating but generally upward trend in share price over the examined period. Despite some periods of decrease (namely, late July to August and mid to end September), the concluding rebound and growth rate towards the end of the period (particularly in November) seemed to compensate for the downturns.

The growth rate accelerated noticeably in November, but it then decelerated and steadied in December. Further analysis would be required to identify any potential factors influencing these fluctuations and the overall upward trend. Here is a chart of MSFT's price over the past 180 days.

Assessing Microsoft's Quality, Sentiment, and Stability: A Six-Month POWR Ratings Analysis.

Here’s an analysis of the POWR Ratings for MSFT, which belongs to the Software - Business category with a total of 43 stocks. Here are the key points:

  • The latest recorded POWR grade for MSFT is B (Buy) as of December 22, 2023. Throughout various weeks in 2023, MSFT consistently held a power rating of B (Buy).
  • It is ranked #10 in the category. Based on the rank-in-category data, MSFT generally maintained a competitive ranking, securing positions within the top third of the category.
  • The best-observed rank-in-category for MSFT was #9 for the week of October 7, 2023.
  • At its lowest, it was ranked #13 on multiple occasions throughout the year, such as during the weeks of July 1, 8, and 15, as well as September 16 and 23.
  • Notably, even at its lowest rank, it stood better than approximately 70% of other stocks in the same category, signifying a competitive position.

MSFT has been evaluated on several dimensions using the POWR Ratings for a six-month period from June 2023 to December 2023. The three most noteworthy dimensions during this period are Quality, Sentiment, and Stability.

Quality: In the Quality dimension, MSFT has consistently maintained high ratings throughout the period under consideration. Specifically, it scored 94 in June, July, August, and October, while in September, November, and December, the score marginally decreased to 93, indicating a consistent performance in terms of quality.

Sentiment: In terms of Sentiment, an upward trend can be observed over the evaluated timeframe. Starting at 88 in June, the rating progressively increased, reaching its peak at 97 in October and November before slightly declining to 95 in December. Despite minor fluctuations, the sentiment toward MSFT appeared notably positive during the period.

Stability: The Stability rating maintained a fairly consistent score, if slightly decreasing, over the months. It exhibited a steady score of 88 in June, July, and October, then dropped by a point each subsequent month to 87 in August, September, and 85 by the end of December. Despite the slight decline, MSFT's Stability rating remains relatively high overall.

These three factors suggest that MSFT showed significant robustness in terms of Quality and Stability while receiving largely positive Sentiment over the evaluated period.

How does Microsoft Corporation (MSFT) Stack Up Against its Peers?

Other stocks in the Software - Business sector that may be worth considering are Yext, Inc. (YEXT), F5, Inc. (FFIV), and Sapiens International Corporation N.V. (SPNS) - they have better POWR Ratings. Click here to explore more Software - Business stocks.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

MSFT shares were trading at $374.47 per share on Friday morning, up $0.93 (+0.25%). Year-to-date, MSFT has gained 57.53%, versus a 25.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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