Enterprise software giant Microsoft (MSFT) is a company we’re all familiar with. It’s been such a proven winner for such a long time and one of the strongest members of the exclusive FAANG cohort. I am bullish on MSFT stock.
Despite its old age, the firm has been able to pivot its way into new markets to keep its growth rate alive. As many growth companies mature, they lose their edge, and their growth stalls as they enter stalwart territory.
Microsoft is one of few firms that has been able to defy the growth-waning effects of corporate aging. Like many members of the FAANG basket, Microsoft has had to reinvent itself many times.
Indeed, FAANG isn’t just an arbitrary selection of the names atop the S&P 500. They’re a basket of growth companies that can evolve with the times. In essence, winners that, one way or another, find ways to keep winning.
Microsoft has some aging software in its book, most notably the Office suite. Still, it’s found ways to move on to new emerging fields of enterprise tech, creating new businesses more than capable of offsetting any slowing growth in any of its older product categories.
With the COVID-19 pandemic acting as an innovation accelerant, Microsoft’s innovative capabilities have improved drastically over these past few years. Indeed, the stock already reflects such, with MSFT stock up around 60% last year and over 140% from its 2020 lows.
With intriguing technological trends up ahead, most notably the metaverse, I still don’t think Microsoft stock gets the respect it deserves. The company has already shown off a preview of its version of the future of the metaverse, with 3D avatars in a digital office. It’s intriguing, to say the least. Perhaps even more intriguing than Meta Platforms’ (FB) vision of its metaverse.
Microsoft Stock Doesn’t Deserve to Fall, but It’ll Likely Be Dragged Down Anyway
Tech stocks have looked fragile in the first few trading sessions of 2022. Led lower by unprofitable, high-multiple names, proven FAANG plays have also been dragged down. Microsoft shed nearly 4% on Wednesday. Did it deserve to plunge, given its remarkable strengths and ever-improving growth prospects? Probably not.
Should Microsoft stock be dragged down further in this broader tech-driven pullback, it may be a wise idea to be a buyer of shares of MSFT, rather than the hard-hit stocks of the many unprofitable, unproven companies stuck in a bear market. Even after a modest 10% correction, I remain incredibly bullish on the stock.
Unlike many tech stocks out there, MSFT deserves a high multiple. If anything, it may even deserve a higher multiple, given its metaverse ambitions and track record of success. Indeed, it seems like any project Microsoft touches turns into a profoundly profitable new business segment.
Microsoft: Into the Metaverse
The metaverse probably still feels like an abstract concept unless you’ve tried an Oculus Rift or Quest headset. For those who own a VR headset, though, the opportunities at hand are almost palpable.
Meta may be seen as a frontrunner to the emerging trend, but arguably, Microsoft may be the better bet. Unlike some tech titans that aim to preserve their startup culture, Microsoft only seeks to enter a new realm if there’s a good shot at getting a great bang for its invested buck.
Undoubtedly, when Microsoft gets into a new field, you know it means business. Although we just got a teaser of what to expect from Microsoft in the metaverse, investors should not discount its potential to dominate the “metaverse for work” category. Microsoft Teams has been a breakthrough success during the pandemic. On the other side of the pandemic, Teams is likely to continue building its strengths as workforces continue to embrace hybrid work.
Indeed, the Great Resignation of 2021 showed us that employees are now calling the shots. Many workers enjoy working from home, and employers are going to need to better cater to their remote needs.
With Teams and products like it, remote work can be done with minimal productivity destruction. If anything, employees can be even more productive working from home (or anywhere) with magnificent platforms like Teams.
Wall Street’s Take
Turning to Wall Street, MSFT stock comes in as a Strong Buy. Out of 25 analyst ratings, there are 24 Buys and One Hold recommendation.
The average Microsoft price target is $371.36, implying 18.7% upside potential. Analyst price targets range from a low of $320.00 per share to a high of $410.00 per share.
The Bottom Line on Microsoft Stock
Although moving Teams into the metaverse with its Mesh virtual environment seems laughably far-fetched today, it may very well become a normal part of our lives in as little as three years from now.
How other enterprise applications transition into the metaverse remains relative to peers to be seen. Regardless, investors can feel confident knowing they’re in very good hands with one of America’s original tech pioneers.
The implications for Microsoft’s growth could be profound, as Microsoft bets big on software and hardware necessary to bring its version of the metaverse to life. Perhaps more profound than the market is expecting amid this latest tech-driven sell-off.
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Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.
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