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Buy an option on Microsoft shares at the current price?

  • Shares of the second most valuable company in the US, Microsoft, are down 30% from their peak in November 2021.
  • Last month, Microsoft posted its weakest quarterly revenue growth in five years.
  • As this weakness continues, many analysts have lowered their price targets for MSFT over the past month.

Like its counterparts in the high-tech sector, Microsoft Corporation (NASDAQ: ) has not escaped the market downturn this year. Shares of the second most valuable company in the US are down 30% from their November 2021 peak.

However, after such a massive downward move, many investors like myself are wondering if now is the right time to take advantage of this weakness and buy MSFT stock, which has proven to be a very profitable and safe investment over the course of of the last time. decade.

Even after the recession, investors who bought MSFT stock five years ago and held it realized a total return of more than 150%. In contrast, the tech-heavy NASDAQ-100 index has returned about 60% over the same period.

Technological decline

In a note to clients earlier today, Goldman Sachs said the current rally was temporary and predicted the market would bottom in 2023. The investment bank said that while valuations had fallen this year, they had done so mainly in response to rising interest rates. In addition, the bank noted that investors have not yet priced in earnings losses associated with a recession.

Some analysts believe the tech giants will remain under pressure for many years to come as they face sharply rising service and labor costs that will weigh on their growth.

Microsoft is not entirely immune to these headwinds. Last month, the company reported its weakest quarterly revenue growth in five years, hurt by strength and weak sales of Windows software to PC makers.

As this weakness continues, some analysts have lowered their price targets for MSFT over the past month due to the short-term headwinds. However, the stock is still better than Investing.com.

MSFT consensus estimates

Source: Investing.com

The bullish scenario

While it’s unclear how far the current bear market can go, there are plenty of reasons to support the Redmond, Washington stock over the long term.

First, Microsoft is firmly entrenched in the digital economy thanks to its diversified business model, which includes a suite of Office products, cloud services and a video game unit.

Although Microsoft’s revenues and margins are under pressure, the company is well positioned to weather economic downturns thanks to its diversified business and pricing.

The company’s cloud computing business has been the main driver of the stock’s rise over the past five years, as its CEO, Satya Nadella, has ventured into new growth areas, primarily focusing on cloud computing.

Recent results have clearly demonstrated this strength. While MSFT’s sales of Windows software to PC manufacturers slowed significantly in the previous quarter, demand for cloud computing services remained strong.

MSFT Financial Health

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Source: Investing Pro

Sales of Azure services, which run and store business software applications, as well as web-based versions of Office productivity programs, rose 42%, excluding currency effects. This unprecedented growth in cloud computing still has many good years ahead of it.

According to a new report by Grand View Research, the global cloud computing market is expected to reach $1554.94 billion by 2030, growing at a CAGR of 15.7% between 2022 and 2030.

Microsoft’s Azure unit, second only to Amazon.com’s (NASDAQ: ) AWS Web Services group in cloud infrastructure services, is likely to be one of the biggest beneficiaries of this upward cycle.

Microsoft’s strong balance sheet and dividend program provide another solid reason for investors to seek refuge in today’s uncertain times. MSFT currently pays $0.68 per quarter, an annualized yield of 1.13%.

But with cash reserves in excess of $130 billion, the company has enough firepower to prop up its stock with share buybacks and dividend hikes. Microsoft is one of two publicly traded companies to achieve the highest triple-A rating from Moody’s Investors Service and S&P Global Ratings, the two largest credit rating agencies.

Conclusion: Should we buy Microsoft stock?

It’s hard to predict when the market will bottom out in a bear cycle, but one thing is clear to me: Companies like Microsoft, with strong finances and strong products, are not going anywhere. That being said, this market downturn may give investors with a long-term investment horizon a chance to take a position in this outstanding company for steadily growing returns.

Disclosure: At the time of writing, the author is long on the MSFT action. The opinions expressed in this article are solely those of the author and should not be considered investment advice.

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