After Underperforming in 2024, is Mega-Cap Microsoft Stock Still a Buy?

Tech giant Microsoft Corp. (MSFT) is one of the largest publicly traded companies by market cap, currently worth $3.09 trillion. The Redmond, Washington-based company develops and supports software, devices, services, and solutions for both enterprises and customers worldwide. Microsoft offers products such as Office 365, SharePoint, LinkedIn, Azure, SQL and Windows servers, Visual Studio, and more, and the company emerged as an early leader in the artificial intelligence (AI) race with its massive investment in OpenAI.

However, MSFT stock has underperformed the broader market this year. MSFT is up just 10.2% in 2024, compared to a gain of 23.5% for the S&P 500 Index ($SPX), and a 22% rise for the Nasdaq-100 Index ($IUXX). Microsoft shares peaked in July around $468, and they're down about 11% from that high point.

MSFT also pays a dividend of $0.83 per share on a quarterly basis, which it has consistently increased over the past two decades. The stock yields 0.80% at current levels.

Microsoft Posts Upbeat Results

Microsoft posted its fiscal Q1 2025 earnings at the end of October, where its profit rose 11% to $24.67 billion, or $3.30 per share, and surpassed the average analyst estimate of $3.08. The company reported revenue of $65.68 billion during the quarter, up 16% year over year to beat Wall Street’s estimated $64.41 billion. 

Microsoft Cloud revenue accounted for $38.9 billion of the top line, up 22% from the year-ago period. Intelligent Cloud revenue rose 20% to $24.1 billion, led by a 33% increase in Azure revenue.

The cash balance at the end of the quarter totaled $78.42 billion, increasing from $75.54 billion reported same quarter last year. During Q1, Microsoft returned $9 billion to shareholders in the form of dividends and buybacks.

However, MSFT stock fell 6% on Oct. 31 as investors reacted to the report, with Wall Street zeroing in on management's forecast for a slower sequential growth rate in Azure revenue. On the conference call, CFO Amy Hood projected “Q2 revenue growth to be 31% to 32% in constant currency,” down from the 33% growth realized in Q1.

What Do Analysts Expect for MSFT?

In a recent note, Citi analyst Tyler Radke said that Microsoft is on track to ramp Azure revenue back up during the second half of the fiscal year, which could alleviate some investor concerns.

After meeting with the company investor relations team and divisional CFOs, Radke wrote, "We walked away feeling that management had good confidence in the 2H Azure reacceleration and ramping supply of capacity, which should ease current constraints." The analyst backed his “Buy” rating and $497 price target on MSFT, adding, "Overall, the meeting reinforced our positive view on MSFT, and we believe that shares can move back into favor as more evidence of GenAI monetization, including an acceleration in 2H Azure growth, takes hold."

Overall, Microsoft stock is still a top pick among analysts, with a consensus rating of “Strong Buy” among the 40 in coverage.

The average price target from this group is $504.45, which suggests that MSFT stock could rally more than 21% from current levels. 

At 31.7 times forward adjusted earnings, shares of Microsoft are valued right in line with historical averages, indicating that now could be a good time to scoop up shares in anticipation of longer-term upside.