The industry-leading returns on assets, equity, and invested capital make this AI player, and 49% owner of OpenAI, a compelling buy. Should you scale with this AI stock
Long Trade Idea
Enter your long position between $507.31 (yesterday’s intra-day low) and $520.86 (the intra-day low of a preceding price gap higher).
Market Index Analysis
- Microsoft (MSFT) is a member of the NASDAQ 100, the Dow Jones Industrial Average, the S&P 100, and the S&P 500.
- All four indices continue to climb a wall of worry in a bump-and-run reversal pattern.
- The Bull Bear Power Indicator for the NASDAQ 100 shows a negative divergence and does not confirm the uptrend.
Market Sentiment Analysis
Equity markets paused their bubble rally yesterday after comments by Federal Reserve Chairman Powell cautioned that the central bank has no risk-free path. The labor market has deteriorated, while core inflation remains stubborn. Therefore, last week’s interest rate cut may have strengthened the case of stagflation, the worst economic condition. NVIDIA’s $100 billion investment announcement in OpenAI also raised concerns about a circular economy focused on AI, another red flag for the economy. Futures show a rebound this morning, but volatility should persist until Friday’s inflation reading.
Microsoft Fundamental Analysis
Microsoft is the largest software maker, one of the most valuable public companies, and one of the most valuable brands globally. It is a significant player in cloud services, gaming, and AI, following its massive investment in OpenAI.
So, why am I bullish on MSFT following its mid-summer correction?
Microsoft has an excellent AI strategy and a near monopoly on operating systems, as its Azure cloud services continue to surpass estimates. Valuations are reasonable for an AI and tech company, and I believe it will receive a massive revenue boost once ChatGPT monetizes sufficiently. The dividend yield remains a disappointment, but MSFT has industry-leading operating statistics. I rank it as a must-have for any portfolio.
|
Metric |
Value |
Verdict |
|
P/E Ratio |
37.33 |
Bearish |
|
P/B Ratio |
11.02 |
Bearish |
|
PEG Ratio |
2.23 |
Bullish |
|
Current Ratio |
1.35 |
Bearish |
|
ROIC-WACC Ratio |
Positive |
Bullish |
Microsoft Fundamental Analysis Snapshot
The price-to-earning (P/E) ratio of 37.33 makes MSFT a reasonably priced stock in the AI field. By comparison, the P/E ratio for the NASDAQ 100 is 33.32.
The average analyst price target for MSFT is $615.79. It suggests excellent upside potential, with manageable downside risks.
Microsoft Technical Analysis
Today’s MSFT Signal
Microsoft Price Chart
- The MSFT D1 chart shows price action inside a bullish price channel.
- It also shows the price-action trading grinding higher along its ascending 61.8% Fibonacci Retracement Fan level.
- The Bull Bear Power Indicator is bullish with an ascending trendline.
- The average bullish trading volumes are higher than the average bearish trading volumes during the recent drift higher.
- MSFT is advancing with the NASDAQ 100, a bullish signal.
My Call on Microsoft
I am taking a long position in MSFT between $507.31 and $520.86. The return on invested capital is excellent, and the PEG ratio suggests more upside. I am buying into the potential of Azure and its AI strategy.
- MSFT Entry Level: Between $507.31 and $520.86
- MSFT Take Profit: Between $585.62 and $600.71
- MSFT Stop Loss: Between $472.51 and $488.70
- Risk/Reward Ratio: 2.25
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