Microsoft Stock Key Metrics
Microsoft is one of the biggest providers of products and services in the technology space. Founded in 1975, the company has grown to become a multinational technology giant that now dominates the U.S. stock market with over $2.4 trillion in market capitalization (only behind Apple at nearly $3 trillion) and more than $200 billion in annual revenue.
The company operates in three main segments:
- Productivity and Business Processes: Software and application services. including Office 365, Microsoft 365 Copilot, SharePoint, Teams, LinkedIn, Dynamics 365 ERP and CRM solutions
- Intelligent Cloud: Server products and cloud services and enterprise services
- More Personal Computing: Windows operating system, Xbox gaming consoles, Surface tablets, Bing and Edge
A quick view of the segment revenue and operating income growth above reveals how Microsoft’s intelligent cloud segment is the fastest-growing and most profitable segment.
For reviewing a technology stock such as Microsoft, you should look at some important metrics to deduce the current financial health and prospects of the business. These include revenue and income growth, free cash flows, valuation and investment in R&D.
In this article, we’ll review MSFT’s stock performance and business strength and determine whether Microsoft's stock price can reach $500. MSFT closed at $335.92 per share on July 31.
The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download one of Forbes' most popular and widely anticipated reports, 12 Best Stocks To Buy for 2024.
MSFT Stock Price History
Microsoft’s stock has been on a tear for the past ten years, returning more than 980% to investors who have kept their trust in the company since 2013. Over the past five years, MSFT stock has returned nearly 220% to investors. Since 2013, MSFT stock has been able to generate consistent CAGR, returning 27% from 2013-2018 and 26% CAGR return from 2018-2023.
The Microsoft stock price chart above highlights the underlying strength of Microsoft’s business. It also depicts the stock’s resilience to hold up and grow in the face of heightened market volatility, as it:
- Was quick to recover after the dot-com boom went bust in 2000
- Remained resilient in the face of the 2007-2008 global financial crisis
- Sailed past 2018 and the Covid-19 pandemic
- Plunged but subsequently recovered from the Covid-19 holdover coupled with Russia’s invasion of Ukraine in 2022.
The primary factor that helped Microsoft's stock growth over the years, despite the above factors, is its earnings growth. Over the past five years, even though MSFT’s P/E is down 33%, MSFT’s market capitalization (which is a function of price) has grown 223%. A clear indication of robust earnings growth holding the stock up during good times and bad. Microsoft’s earnings have grown a whopping 256% over the past five years.
Microsoft Stock In 2023
2023 has been a good year for Microsoft so far, with the stock returning 35% year to date and sporting a market capitalization of $2.4 trillion.
Here’s how the story has unfolded so far:
- In January, Microsoft had to lay off 10,000 employees to abate the macro impact on the business.
- In February, Microsoft integrated ChatGPT’s AI features into its Bing search engine, challenging Google's dominance in the search space. The company also defended its $69 billion Activision Blizzard acquisition deal in front of the EU regulators.
- March saw Microsoft nearing a settlement deal with some companies in the cloud computing antitrust battle.
- In April, MSFT smashed earnings estimates with cloud business revenues leading the way. The company is also betting on AI to be a major growth factor.
- In May, the European Commission approved Microsoft’s Activision Blizzard acquisition.
- In June, Microsoft revealed its 2030 sales target of $500 billion.
- In July, Microsoft received a more than $3 trillion outlook from Morgan Stanley on AI (amid a broader selloff). The company also announced its $30 per month Microsoft 365 Copilot package.
Microsoft’s latest earnings results (fourth-quarter fiscal 2023), validated “Cloud” as the key contributor to growth and margins at MSFT. About 43% of Microsoft’s fourth-quarter revenues came from its Intelligent Cloud Segment, which registered a 15% growth year over year.
Revenue and margin from Microsoft Cloud have been key contributors to MSFT’s overall financial performance, and the gross margin increase, according to the company, was “slightly driven by improvement in Office 365, partially offset by lower Azure and other cloud service margin.” (Microsoft Cloud includes Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other cloud properties.)
The company’s overall gross margin remains robust at 70% translating effectively into an operating margin of 43%. Year over year net income grew by 20% and diluted EPS by 21%. FCF (free cash flow) is up 12% over the same period.
The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download one of Forbes' most popular and widely anticipated reports, 12 Best Stocks To Buy for 2024.
Microsoft Stock Forecast: Can MSFT Reach $500?
When considering the future potential for gain, consider the following factors that could potentially affect Microsoft stock forecast:
- While Microsoft’s cloud business is growing nicely and continues to be a key driver of growth going forward its PC and gaming business could be impacted by any reduction in discretionary spending by consumers.
- Microsoft’s investments in AI and emerging technologies should drive additional revenue streams and complimentary growth for the business.
- Microsoft’s continued investment in research and innovation has helped it adapt to changing market conditions and to combat competition.
- The company’s fundamentals remain sound, but macro factors such as the strength of the U.S. dollar, supply chain issues and the Russia/Ukraine war, may impact the business along with the rest of the market.
- Risks such as stiff competition and change in regulation or policy support are always prevalent with a technology stock like MSFT.
The stock reaching a $500 per share price implies about a 50% upside from current levels. This appears unobtainable considering analysts' consensus for Microsoft stock price is currently at $390 (indicating a 16% upside from current levels).
Though price targets range from $232-$450, given the macroeconomic conditions prevailing and the business-specific risks (competition, slowing segments), it may be too optimistic to expect a $500 stock price for MSFT, except over the long term.
If you look at relative valuations, the answer wouldn’t be any different. Microsoft’s current P/E stands at 34.5x and its peer average P/E at 33.6x. It is important to keep in mind that the current P/E values of most tech companies are elevated and lofty, given the tech sector is up about 38% year to date (using the QQQ as a benchmark). So, the average P/E derived from comparisons with other large-cap competitors such as Oracle (ORCL), Meta Platforms (META), Apple (AAPL) and Alphabet (GOOGL) may not be sustainable over the next 12 months. Once the froth settles, we can expect the P/E valuations to rationalize and settle a bit. However, MSFT stock has a five-year average P/E of around 32 according to YCharts, so let’s work with that as our base.
Consensus EPS estimates are at 11 for FY24 (fiscal year ending June 2024) and 12.67 for FY25. So, back-of-the-napkin math would suggest a 12-month target price (considering a P/E of 32.6x) of $360 per share.
Let’s take a range of probabilities that could pan out for MSFT stock.
Considering a range of EPS figures (as represented by the column ranging from 10.5 to 13), and a range of P/E figures (row 1, ranging from 30 to 35) in the table above, we see a minimum expected value of $315 for Microsoft stock. The maximum potential upside for MSFT stock is reflected at a P/E of 35 and EPS of 13 leading to a stock price of $455 per share. This is still away from the potential $500 per share we are exploring here.
Is Microsoft Stock A Good Long-Term Investment?
While a $500 Microsoft stock forecast may be far-fetched, is Microsoft a good stock to buy? For the long-term: Yes. Microsoft stock (MSFT) is a great long-term investment for moderate to conservative investors. It has delivered 235% and 60% total returns to investors over the past 5-year and 3-year periods, respectively.
Its growing quarter-on-quarter financial performance aided by a strong balance sheet and favorable financial ratios, should help it continue to deliver returns to its shareholders. Its margin profile is improving, and earnings growth is robust. Investment in new areas should help it sustain market share and Its ample free cash flows should Microsoft sustain and overcome any market downturns.
Although MSFT stock has been paying dividends for the last 18 years, income investors may not find MSFT stock that attractive as it has delivered just a 0.71% average dividend yield over the past 4 years, and they could find many alternative tech stocks with promising dividend income (think IBM, QCOM, INTC, ORCL).
Microsoft Stock FAQs
What is the 12-month target price for Microsoft?
The 12-month target price for Microsoft stock is $360/share.
Is MSFT a growth or value stock?
Microsoft is a growth stock. AI and Cloud can be seen as its current catalysts for growth.
Does Microsoft pay a dividend?
Yes. Microsoft pays a dividend. Its current dividend yield is 0.79% and the average 4Y dividend yield is 0.96%. Microsoft has consistently been paying dividends for the last 18 years.
The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download one of Forbes' most popular and widely anticipated reports, 12 Best Stocks To Buy for 2024.
