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Microsoft Stock is Underperforming in 2024: Buy Opportunity?
The technology industry has evolved at a breakneck speed, with giants like Microsoft Corporation (MSFT) leading the charge. From pioneering software development to emerging as a key player in cloud computing, Microsoft’s unwavering commitment to boundary-pushing innovation helped it grow into a $3 trillion-dollar titan.
Yet, even giants falter. In July, Microsoft was involved in a botched CrowdStrike (CRWD) software update that crashed global IT systems, which weighed on MSFT stock. As Microsoft looks to recover from this hiccup, it is set to host a key conference next month at its Redmond campus to overhaul cybersecurity strategies and regain momentum.
Despite the stock’s recent turbulence, analysts remain optimistic about Microsoft’s future. Backed by a long history of earnings growth, and nearly two decades of solid dividend increases, now could be an opportune time to scoop up this legacy tech giant on the dip.
About Microsoft Stock
Based in Redmond, Washington, tech powerhouse Microsoft Corporation (MSFT) boasts a $3.1 trillion market cap. It seamlessly blends innovation in PC software and cloud solutions with its Azure platform. From pioneering operating systems to revolutionizing productivity tools with artificial intelligence (AI), Microsoft stays at the forefront of enterprise and personal tech breakthroughs.
Like many other mega-cap tech names, Microsoft stock has pulled back from the lofty heights reached earlier this summer, and is currently down 11.8% from its record high of $468.35 reached on July 1. The pullback was exacerbated in mid-July by the CrowdStrike outage and mixed signals from Microsoft’s Q4 earnings.
As a result, MSFT is now up just 10.9% on a YTD basis, lagging behind the broader S&P 500 Index’s ($SPX)return of 18.4%.
In terms of valuation, the stock is trading at 31.35 times forward earnings - higher than some of its tech rivals, but in line with most other trillion-dollar tech giants. It also tracks with Microsoft’s average 5-year valuations, suggesting the stock typically carries a premium valuation.
Microsoft Dips on Q4 Earnings
MSFT fell 1% on July 31 as Wall Street reacted to its fiscal Q4 earnings results, which beat analysts’ expectations. Despite delivering strong numbers, Microsoft’s cloud unit brought in $28.52 billion - just shy of the $28.68 billion forecast.
However, the tech giant generated revenues of $64.7 billion, up 15.2% year over year. EPS grew by 10% annually to $2.95, continuing a streak of eight consecutive earnings beats.
Azure’s AI services were a standout, driving eight percentage points of the cloud growth. With a 60% annual increase in Azure AI’s customer base and big-ticket contracts for Azure and Microsoft 365 rolling in, Microsoft is deepening customer loyalty and cementing its place in the AI arena, going head-to-head with Amazon (AMZN) Web Services and Google (GOOGL) Cloud.
Analysts tracking Microsoft predict fiscal 2025 revenue to be around $279 billion, with EPS projected to rise 10.5% to $13.04.
Microsoft’s Dividend History
In fiscal Q4, Microsoft returned approximately $8.4 billion through dividends and share buybacks, pushing its total shareholder cash return for fiscal year 2024 to over $34 billion.
The company most recently declared a quarterly dividend of $0.75 per share, payable on Sept. 12. Its annualized dividend of $3.00 per share yields 0.73%. Plus, the payout ratio stands at 24.71%, underscoring Microsoft’s focus on rewarding investors while investing in growth.
With a 19-year streak of dividend increases, Microsoft is on pace for future Dividend Aristocrat status.
Microsoft's Plan After CrowdStrike Chaos
On Sept. 10, Microsoft is hosting a conference at its Redmond campus, designed to reshape cybersecurity strategies after the flawed CrowdStrike update that took down global IT operations in July.
A glitch in CrowdStrike’s Falcon Sensor led to widespread crashes across Windows systems, disrupting major services like Microsoft 365, Azure, and AWS. The fallout was immense - Instagram and eBay (EBAY) were impacted, Delta Air Lines (DAL) lost an estimated $550 million, and chaos rippled through hospitals and logistics companies. Despite efforts to roll back the faulty update, the damage lingered, affecting over 8.5 million Microsoft devices.
Cybersecurity giants, including CrowdStrike, Check Point (CHKP), and SentinelOne(S), will gather at the Windows Endpoint Security Ecosystem Summit to tackle these vulnerabilities. The spotlight will be on shifting from the risky “kernel mode” to a safer “user mode” for applications, which could prevent system-wide crashes. Kernel mode failures had caused the July disaster, but transitioning to user mode might only address part of the issue.
The summit will also explore eBPF technology to check if programs run smoothly without crashes and advocate for memory-safe languages like Rust. Microsoft, which also competes with CrowdStrike via its Defender for Endpoint, promises an open dialogue and will share updates post-event.
What Do Analysts Expect for Microsoft Stock?
MSFT stock has a consensus “Strong Buy” rating overall. Among the 39 analysts in coverage, 35 suggest a “Strong Buy,” three advise a “Moderate Buy,” and one recommends a “Hold.”
The mean price target for MSFT is $499.58, indicating an upside potential of 19.7% from Friday’s close. The Street-high target price of $600 implies the stock could rally as much as 43.8%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
