After another sell-off following hawkish Fed comments, Microsoft stock (NASDAQ: MSFT) is now down over 33% year-to-date. It’s been such a painful fall for the big tech darling that recently delivered cautious guidance for its coming quarter. Despite the selling pressure on MSFT stock, Wall Street analysts are not yet ready to turn on the name. Clearly, they still like what they see underneath the hood. That alone should have the attention of investors on the hunt for a bargain in today’s brutal bear market.
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Undoubtedly, CEO Satya Nadella is pointing the finger at ominous trends that could easily worsen once the recession arrives. Though Microsoft is a blue-chip heavyweight that’s demonstrated resilience while carrying the markets for so long, the company is showing signs that it, too, can be vulnerable to concerns facing almost every other firm in this market.
Very seldom does Microsoft stock sink under its own footing. As macro headwinds continue to weigh, I’d look for Nadella and company to continue to err on the side of caution. Not much is known about the severity of the coming downturn, after all. With a “Fed pause” shot down by Jerome Powell, questions linger as to the Fed’s pain tolerance in its battle against inflation.
The market may not be done dealing out punishment to the top tech companies. Still, I stand with the bullish analysts regarding MSFT stock. There’s just too much durable growth happening behind the scenes. Even a modest pulling of the brakes is unlikely to derail the firm’s longer-term growth prospects.
Microsoft Stock’s Post-Earnings Plunge Seems Overdone
Microsoft’s post-earnings reaction was horrific, with the stock tanking 7% out of the gate. The quarterly results were decent, with a modest revenue and earnings beat (up 11% and 4%, respectively) — a big deal, given how many firms have fallen flat this earnings season! Still, downbeat guidance and subpar Azure growth raised red flags for some jittery investors. In the fourth quarter, Azure was a bright spot. Now, it seems like the cloud business is starting to succumb to the headwinds.
Despite downbeat comments and the slowed pace of growth, investors with a longer-term horizon shouldn’t conclude that the best growth days are over.
Microsoft has a lot of intriguing projects, most notably in video gaming and the metaverse, that could help it bounce back once the band-aid of a recession is torn off. Indeed, there will be pain over the short to medium-term, but looking further out, it’s tough to pass on Microsoft, given its ability to keep its growth rates alive.
The cloud is still Microsoft’s most compelling growth engine. Though it may not be as recession resilient as many thought, the digital transformation could easily pick up where it left off once the worst of the economic storm clouds moves past us.
Further, Microsoft is already setting its sights on the metaverse despite the rocky start with its HoloLens headset.
Microsoft: Sights Still Set on the Metaverse
The metaverse went from an exciting trend to a laughable money sink in just under a year. Meta Platforms (NASDAQ: META) has likely dug a deeper hole for itself with its expensive metaverse focus that skeptics may deem as premature. Metaverse headsets are tricky, and the risks of failure can be pretty high. That’s why I think Microsoft’s partnership with Meta was a smart move.
As Meta rolls the dice with its hardware (and software), Microsoft is fine with opening up its software to the new medium since there’s the possibility that the HoloLens may ultimately end up a flop once the metaverse is ready for the masses.
With a new headset in hand, Meta is taking a lot of the risk, while Microsoft stands to benefit on the software side. Though the metaverse may be years off, big tech is eager to continue investing in what could be the biggest jump since the advent of the smartphone.
With Office and Cloud Gaming open to Meta’s version of the metaverse, Microsoft has a lot to gain, whether or not Meta holds the keys to the metaverse. Indeed, metaverse software may be more lucrative than hardware, especially given the risks that only a few companies will be able to thrive in the headset market.
As a metaverse software play, Microsoft could be a standout.
What is a Good Buy Price for MSFT Stock?
Turning to Wall Street, MSFT stock has a Strong Buy consensus rating based on 25 Buys and three Holds assigned in the past three months. Two of those Strong Buy ratings were given last week.
The average Microsoft price target is $294.85, implying 33.2% upside potential. Analyst price targets range from a low of $234.00 per share to a high of $411.00 per share.
Conclusion: Microsoft Stock Looks Like a Tech Titan on Sale
Microsoft may not be immune to a recession, but it will likely be ready to deliver next-level growth once markets shift to recovery mode. At 23.1 times trailing earnings, MSFT stock looks like a quality tech titan on sale.
