Microsoft’s generative artificial intelligence technology has garnered attention from investors, but there are other factors driving interest in the stock as well. Jim Cramer believes that Microsoft is the top choice among megacap tech stocks, asserting that the stock could rebound after a recent downturn. Despite hitting a record high of $467 in July, the stock has since experienced a decline, reaching a low of $408 in early August. However, analysts at Wells Fargo remain bullish on Microsoft, identifying search, cybersecurity, and enterprise software as key drivers of revenue growth. They have placed a price target of $515 on the stock, while The Club has set a target of $500.
Wells Fargo points to Microsoft’s search engine Bing as a potential area for growth, especially following a recent antitrust case loss by Google. With the possibility of Bing gaining more market share if it becomes the default search engine on the iPhone, Microsoft could see increased business in the search market. Additionally, Microsoft’s cybersecurity business has become a significant player in the industry, attracting major corporations as clients amidst growing concerns over data breaches. The company’s customer relationship software, Dynamics, also has potential for growth given its large customer base from cloud computing and productivity apps.
While Microsoft’s generative AI efforts are important, Wells Fargo and other analysts emphasize the potential in these underappreciated areas of the business. Despite a relatively small market share for Bing compared to Google, there is room for growth if Microsoft can capitalize on opportunities in the search market. The cybersecurity business, which has surpassed $20 billion in revenue, is another area of strength for the company. Additionally, Dynamics software could see increased cross-selling opportunities due to Microsoft’s existing customer base.
Overall, the future looks promising for Microsoft, with analysts expecting a pickup in revenue in the back half of the year. Wall Street firms, including Piper Sandler, have shown confidence in the stock, adding it to their high-conviction buy list. Despite some setbacks, such as a recent IT outage caused by an upgrade from CrowdStrike, Microsoft’s strong performance in key areas like cybersecurity and search indicate potential for continued growth. With a focus on both AI technology and the company’s other offerings, Microsoft remains a compelling investment opportunity for those looking for exposure to the tech sector.
