Microsoft (NASDAQ:MSFT) experienced a brief hiccup after last month’s earnings release. Uncertainty is rising when it comes to my MSFT stock forecast. Bullishness about Microsoft’s AI growth catalyst has not yet given way to bearishness, but there are concerns the market has already priced this in.
The stock may perform poorly or experience a correction before the end of the year. While concerns are valid, don’t assume the stock’s impressive performance will decline. In fact, there’s plenty in play to make this year another banner one for MSFT. Read on, as I explain why.
MSFT Stock, its Post-Earnings Performance, and Recent ‘Bubble’ Concerns
On Jan. 30, Microsoft released its results for the company’s fiscal second quarter (ending Dec. 31, 2023). During the quarter, revenue came in at $62 billion, up 18% compared to the prior year’s quarter. Diluted earnings per share came in at $2.93, a 33% increase compared to the EPS reported during last fiscal year’s December quarter.
Both revenue and earnings also came in ahead of sell-side forecasts. As for guidance, management made several promising statements. The company expects higher growth for Azure this quarter and higher margins this fiscal year, despite increased spending on AI and cloud infrastructure.
MSFT shares briefly slipped post-earnings and have essentially traded sideways since. Although sentiment has yet to shift, the continued strength of Microsoft and other top AI stocks does have a growing number of market participants concerned.
There are now worries that AI stocks have entered “bubble territory” once again. However, while some popular AI plays could be at that point, I argue that it’s premature to conclude that the MSFT stock forecast is dire.
From ‘Watch and Wait’ to Bullish in a Matter of Months?
After surging 58% over the past twelve months, I’ll admit that another 50% (or higher) rally for MSFT in the twelve months ahead is questionable.
Much of the stock’s prior mega-rally took care of pricing-in the company’s initial efforts to monetize the generative AI technology it has acquired through its strategic partnership with ChatGPT developer OpenAI.
Still, that doesn’t mean that, by adding well over $1 trillion to Microsoft’s market cap, the market has overly priced-in all (or even more) of the company’s potential to benefit from long-term growth trends, especially the AI growth trend.
As I pointed out previously, analysts like BNP Paribas’ Stefan Slowinski have argued that major free cash flow improvements related to Microsoft’s gen AI commercialization could happen starting in the next fiscal year, which begins in July. Hence, why my MSFT stock forecast is optimistic.
Investors could go from “watch and wait” mode back to bullish, all in a matter of months. Results for Q1 2025, or even the outlook for that quarter provided with the Q4 2024 earnings release, may indicate that the company could handily beat current EPS forecasts ($12.69). In turn, driving another wave of outsized price appreciation for shares.
The Verdict: Stay Bullish Despite the Uncertainty
In the near-term, market sentiment, including sentiment about the future direction of interest rates, could play a big role in MSFT’s price performance.
It’s even possible that Microsoft shares do indeed experience a brief sell-off. For instance, if the market overall sells off, or if concerns about overconcentration in “Magnificent Seven” stocks leads to a sell-off specifically for these names.
But despite the uncertainty, there’s still a very good reason to stay bullish. A few quarters from now, it may be revealed that the impact of gen AI integration into Microsoft’s software, cloud, and search businesses is having an even greater impact on growth and profitability than currently expected.
In short, here’s my MSFT stock forecast: while strong FY2025 numbers may not result in another 50%+ run, such an event could nonetheless result in more-than-satisfactory gains relative to current prices.
MSFT stock earns an A rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.