Key Takeaways
Microsoft has soared on the wings of cloud computing and artificial intelligence (AI) advancements. However, it has also faced recent headwinds from antitrust scrutiny and broader economic uncertainties.
A global IT outage in 2024, triggered by a software glitch at cybersecurity firm CrowdStrike, sent ripples through the market, including a brief dip in MSFT stock price . However, the company’s resilience shone through as it quickly rebounded.
Microsoft stock has gained 12% in 2024 as the company has established itself as a central player in the AI revolution, with rapid growth fueled by AI adoption across its business segments.
Azure, the company’s cloud computing platform that supports AI tool deployment for businesses, recorded a strong 34% revenue increase last quarter. Although growth is expected to slow slightly, it remains on an impressive upward path.
Microsoft’s extensive ecosystem of products and services is further enhanced by seamless integration with its AI capabilities.
Its AI-powered Copilot features across applications offer a compelling value proposition, though the pace at which businesses embrace these subscriptions will be closely monitored.
The company is facing several antitrust issues globally. It was fined after the European Commission accused it of illegally bundling its chat and video app Teams with its Office product, giving it an unfair advantage over rivals like Slack .
Microsoft, which has been fined $2.4 billion over the past decade for violating EU competition rules by tying or bundling products, came under EU scrutiny after a 2020 complaint by Salesforce-owned Slack.
In June last year, the Federal Trade Commission (FTC) began investigating Microsoft’s relationship with startup Inflection AI to determine if its actions violate antitrust rules for mergers and acquisitions.
According to a report from The Wall Street Journal , Microsoft reportedly paid $650 million to license Inflection’s technology earlier this year and hired senior members of the Inflection team and “almost all of its employees.”
Furthermore, Microsoft’s $13 billion investment in OpenAI could lead to a full-blown European Union merger probe. The EU wants to determine whether it merits further investigation for possible breaches of merger rules.
From 2010 to 2024, Microsoft saw substantial increases in its gross profit. Throughout this decade, Microsoft invested heavily in cloud computing, AI, and productivity tools, steadily increasing its gross profit year over year. By the end of the decade, these investments began to show significant returns.
In 2021, Microsoft‘s annual gross profit reached $115.856 billion, a 20% increase from the previous year, driven by the rapid adoption of cloud services and a diverse product portfolio. The following year, gross profit rose to $135.62 billion, a 17% increase. Expanding cloud services and the gaming industry, including Xbox, bolstered this growth.
Microsoft reported mixed results for the quarter ending Sept. 30. Despite a 16% year-over-year increase in revenue and an 11% rise in net income to $24.67 billion, the stock declined due to softer-than-anticipated guidance.
The company projected revenue between $68.1 billion and $69.1 billion for the fourth quarter, falling short of analysts’ expectations of $69.83 billion.
Although Microsoft isn’t as old as some other blue-chip companies, it has built a solid reputation with 17 years of uninterrupted dividends and 13 years of growth. This makes it a versatile stock, offering both dividend growth and capital appreciation potential. Over the years, Microsoft has steadily increased its dividend from $0.08 in 2003 to the current $0.75, with a recent 10% hike last month.
Despite rising capital expenditures (CAPEX) due to investments in artificial intelligence, Microsoft’s free cash flow comfortably covers these expenses. Among large, well-known companies like Apple, Disney, Amazon, and Alphabet, investors sometimes invest hastily without examining the financial details, which can lead to unexpected setbacks. Even for a trillion-dollar market cap company like Microsoft, financial risks exist.
However, Microsoft has consistently met and exceeded its dividend obligations in recent years. Since 2018, Microsoft has generated more than twice the amount of free cash flow compared to the dividends paid out. This results in a conservative average payout ratio of 33% over the past six years.
At the beginning of 2023, Microsoft’s free cash flow increased by 22% year-over-year, reaching $20.7 billion. This is enough to cover the entire annual dividend amount in just one quarter.
Microsoft’s stock is projected to experience steady growth over the next several years, driven by historical price trends, robust long-term development prospects, and favorable industry dynamics.
The forecast anticipates that Microsoft’s stock will reach $478.17 by mid-2026 and close the year at $498.61. The upward momentum will continue in subsequent years, with the stock predicted to hit $519.91 by mid-2027 and $542.13 by year-end.
By 2028, the stock may climb further, reaching $565.30 in the middle of the year and $589.46 at its close. In 2029, projections show prices rising to $614.65 mid-year and $640.91 by the end of the year.
Looking ahead to 2030, Microsoft stock may cross significant thresholds, reaching $668.31 by mid-year and $696.87 at year-end.
This consistent growth outlook underscores Microsoft’s strong position in the tech industry, bolstered by its continued innovation and dominance in high-demand areas such as cloud computing and artificial intelligence.
According to insights from 29 Wall Street analysts over the past three months, Microsoft’s 12-month price targets average $503.61. Projections range from a high of $550.00 to a low of $425.00. This average target reflects a potential 19% increase from the last price of $424.56.