Microsoft 2024: OpenAI Investor Heads Into the Future With High Expectations, Valuation
Microsoft, the tech giant, has experienced significant job cuts in 2023 due to overhiring during the pandemic, a common practice among companies in the tech sector during that period. However, the company’s investment in generative AI through its stake in OpenAI is seen as a driving force for the future. Despite this positive outlook, Microsoft’s valuation may prove to be too high for certain investors.
Throughout 2023, Microsoft’s stock price has soared by 54%. In November, shares reached a 52-week high of $384.30 but faced a 1.2% decline on Monday.
Over a span of five years, Microsoft’s stock has seen an impressive increase of over 246%.
Seeking Alpha’s Quant Rating system has assigned Microsoft a Hold rating, largely due to its F grade in the valuation category. The stock also received a C+ for growth. However, the company boasts high grades in other areas, receiving an A+ for profitability and an A- for momentum.
Ksir, an analyst, acknowledges Microsoft’s premium status but argues that its current valuation is excessively stretched. The company’s earnings yield is 210 basis points below that of the 10-year treasury yields. According to Ksir, the stock presents a poor risk-reward ratio, with projected annual returns of only 8% if growth accelerates by a factor of 2x or if interest rates drop to zero. Consequently, the analyst has assigned a Sell rating to the stock.
In contrast, The Value Portfolio, an SA author, has assigned a Buy rating to Microsoft, citing the company’s strong revenue growth in its cloud business. Nevertheless, the author acknowledges the risk posed by Microsoft’s lofty valuation.
In its most recent earnings report, Microsoft exceeded estimates with revenue of $56.5 billion, surpassing the average analyst estimate by $1.95 billion. Additionally, the company reported GAAP earnings of $2.99 per share, beating the estimate by $0.34 per share.
As Microsoft looks toward the future, its association with OpenAI and its focus on generative AI is met with high expectations, despite concerns about the company’s valuation. Microsoft’s ability to adapt and thrive in the evolving tech landscape will determine its success moving forward.
