MSFT - Microsoft: I Underestimated Its Pace Of AI Infusion

2024-07-08 11:45:10 ET

Summary

• Judging by Microsoft Corporation’s recent earnings, my earlier analyses have underestimated the pace of its AI deployment.
• Microsoft Corporation is at a point of applying AI at scale to drive revenue growth and profitability.
• As a result, I see good odds for market-beating returns despite its record stock prices and 40x P/E.

MSFT is applying AI at scale

I last wrote on Microsoft Corporation ( MSFT ) stock a little more than 3 months ago, as shown in the image below. In that article, entitled " Wonderful Business. Awful Price ," I analyzed the strength of its business model and expressed my reservations about the rich valuation and the uncertainty of its AI-fueled growth projection. Quote:

My goal was to scrutinize the key variables baked in the valuation of Microsoft Corporation: its growth rates (and the corresponding catalysts) and its discount rates. My conclusion is that Microsoft stock's current price reflects too much valuation risk even under some quite aggressive growth assumptions - even with AI potential considered.

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