We previously pointed to Microsoft (NASDAQ:MSFT) stock as a great way to get exposure to the artificial intelligence revolution.
A month later, Microsoft is still a dominator in the AI arms race among mega-cap tech firms. Plus, Microsoft’s cloud segment results are undeniable.
All in all, the aren’t any glaring red flags for prospective Microsoft investors, though there may be some yellow (cautionary) flags to consider.
Some folks might pigeonhole Microsoft as a safe, mainstream technology company to invest in. Yet, Microsoft’s forays into AI and cloud computing show that the company is still cutting-edge and innovative.
Still, investors don’t need to over-leverage themselves on Microsoft stock now.
The best strategy is to weigh Microsoft’s results along with the company’s valuation, and consider a moderate approach instead of going all-in.
Microsoft Touts AI-Powered Products
Although the machine learning revolution is still in its early stages, Microsoft is already emerging as a winner in the AI space. Clearly, partnering with OpenAI and availing itself of the company’s ChatGPT chatbot was a smart move for Microsoft in 2023.
This year, Microsoft has embedded ChatGPT functionality into its Bing search engine and Edge browser. Furthermore, the company is redesigning Edge, where one out of every four Bing chats originate.
The results of Microsoft’s foray into generative AI are already noticeable. For instance, users have created more than 200 million images with Bing Image Creator.
Bing has reportedly “grown to exceed 100 million daily active users,” while “daily installs of the Bing mobile app have increased 4X since launch.”
Microsoft has seen Bing increase its market share among search engines. This, according to the company, “follows the eight straight quarters of growth in our Microsoft Edge browser share.”
Positive Results Are Priced-In to MSFT Stock
Interestingly, AI wasn’t the primary focus of Microsoft’s third-quarter fiscal 2023 results. It was a positive quarter overall, in which Microsoft demonstrated cloud market strength but softness in personal computer (PC) products.
Here’s the breakdown. Year over year, Microsoft’s revenue was up 7% and the company’s net income rose 9%. The soft spot was in Microsoft’s More Personal Computing segment revenue, which declined 9%.
Meanwhile, Microsoft demonstrated momentum with its Intelligent Cloud segment, which showed a revenue increase of 16%.
Overall, Microsoft’s quarterly results were pretty good, if not mind-blowing.
It’s understandable that the company’s PC segment didn’t thrive, as PC sales haven’t been strong throughout the U.S. tech market in general during the past couple of years.
Finally, there’s a cautionary note concerning Microsoft stock as it may be overbought at the moment. Microsoft’s GAAP trailing 12-month price-to-earnings ratio of 33.66x isn’t outrageously high.
However, it’s definitely higher than the sector median P/E ratio of 21.76x, so that’s a factor for value-focused investors to consider.
The Verdict on Microsoft Stock
Microsoft isn’t showing strength in the PC market. The company is an undeniable leader among mega-cap business in AI and cloud computing.
Microsoft’s results have been fairly impressive. Yet, any publicly available positive news may have already been priced into MSFT stock. Therefore, it makes sense to hold on to any current investment in Microsoft shares, but there’s no need to load up too heavily right now.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.