- Microsoft hit an all-time high in July but has struggled to find the same momentum.
- However, solid fundamental performance and bullish analyst comments should see it continuing to rally into 2025.
- The technical setup, as is its risk/reward profile, is also attractive right now.
Since powering to several all-time highs in June and July, shares of Microsoft (NASDAQ:MSFT) have been struggling to regain momentum. Equities, in general, had a solid first half of the year, but interest rate jitters and a general softening of sentiment towards tech brought about some volatility, which is still being recovered from.
However, while scary at the start of last month, Microsoft’s juicy 17% drop is starting to look more and more like a healthy correction. The tech titan has been up more than 10% since then, with some bullish higher lows being set along the way.
As we start to round the corner into the year's final quarter, there are several reasons to think the latest phase of Microsoft’s multi-year rally has begun. Here are our top three.
1) Fundamental Performance
First up are Microsoft’s fundamentals, which are among the best in the business right now. Their most recently released numbers showed a record revenue for the business and its second-highest EPS number. Both prints easily topped analyst expectations yet again, with the company’s cloud revenue, in particular, helping to underscore just how much potential Microsoft still has.
A slightly lowered forecast gave some cause for concern in the days following, and it didn’t help that the release coincided with the S&P 500’s worst week in years. However, the fact that Microsoft shares are already well above their pre-earnings price shows any negativity here has been factored in and forgotten about.
Don’t forget that Microsoft is a $3 trillion company, but it is still managing to grow total revenues year-on-year by more than 15% and certain units by as much as 20%. Off the back of such solid fundamentals, this week has already seen the company boost its dividend and authorize a $60 billion buyback of shares, two incredibly bullish actions to take that indicate management’s optimism about the years ahead.
These are all actions and growth trends that many of Microsoft’s tech peers would love to have. And with the Fed just now starting to cut rates, making it cheaper for growth stocks like Microsoft to borrow, we can expect this trend to continue.
2) Bullish Analysts
The second reason to be excited about Microsoft is the sheer number of analysts who are bullish on the stock. Since the company released its last earnings report, Wells Fargo, UBS Group, and Wedbush have all reiterated their Buy or Overweight ratings on the stock, along with price targets that are all above $500.
The latter specifically highlighted Microsoft this week in a list of companies that they consider to be especially well-positioned to benefit from the Fed’s rate cut and its knock-on effect for AI. This week, the team at Morgan Stanley reiterated their overweight rating on Microsoft shares, with analyst Keith Weiss highlighting what he called “an attractive risk/reward” profile.
His $506 price target for Microsoft speaks for itself, too. Considering the stock closed at $430 last night, that’s pointing to a targeted upside of nearly 20%. If shares trended toward that level in the coming weeks, they’d have crushed July’s previous all-time high and would be in blue-sky territory.
3) Technical Setup
Another reason to like Microsoft is the technical setup of the stock right now. Since hitting a hard low at the start of August, it hasn’t even looked like it wanted to test it again. Shares have essentially only trended up, while setting higher lows on the way. This is an indication of strong underlying support and shows that the bulls are firmly in control.
Investors thinking about getting involved should look for shares to stay above $410 on any pullback from here, with a move above $440 likely indicating the stock is ready to start testing July’s all-time high.