Microsoft (NASDAQ: MSFT) shares took a huge hit on the chin during Tuesday’s CPI-induced shock. The stock slid more than 5% and is at risk of flirting with 52-week lows. In any case, I think the recent inflation panic is nothing more than an opportunity to pick up the top FAANG stock at a lower price of admission. With the cloud and Xbox Gaming Division acting as new growth engines for the firm, it’s hard to see the behemoth slowing in its tracks, even with a recession up ahead.
Now down more than 29% from highs, Microsoft stock seems to have a mild economic downturn mostly baked in. A more hawkish Federal Reserve and a mild earnings miss in the fourth quarter have fuelled a vicious bear market that now seems overextended.
At the end of the day, Microsoft is a firm that knows how to pivot at the right times to keep its growth rate going strong. Looking ahead, Microsoft expects double-digit sales and operating income for its Fiscal Year 2023.
As the firm continues raising the bar in the enterprise software space, with promising new products like Teams that aim to make the most of the digital transformation trend, Microsoft is also ready to make a bigger splash in the consumer segment.
Microsoft’s PC products, including the Microsoft Surface, have been quite successful. However, it’s video gaming where the company can really make an impact over the next decade, as a new generation of games and experiences with realistic graphics draws in crowds ahead of a transition into the metaverse.
Microsoft’s Xbox Gaming Business Could Bolster Consumer Push
Xbox Gaming has been around for decades, but it’s about to come into its own, as the video-gaming market’s growth rate takes it to the next level. In a prior piece, I noted the rise of cloud gaming — which doesn’t require gamers to even have a high-end PC or Xbox console — was likely to bring in a wave of new gamers.
Indeed, the mobile-gaming phenomenon has been unprecedented. It’s the fastest-growing gaming segment. As the advent of improved cloud-gaming capabilities improves, the lines between high-end gaming and casual mobile gaming will likely fade.
For now, cloud gaming — an area of the video-gaming market targeted by many big-tech firms — is in its early days. Latency and stability are two significant concerns that are holding back the technology from really taking off. Fortunately, Microsoft’s beta cloud-gaming service is making major strides in cutting latency considerably. A low-latency cloud-gaming service may very well be the holy grail in gaming.
It isn’t just streaming tech that can help Microsoft better its peers. It has the content library and user base that could shut out competitors. In simple terms, the Xbox business has sky-high barriers to entry. Very few firms look to have the ability to penetrate it.
With the Activision Blizzard deal up in the air, Microsoft could find itself on the cusp of changing the video-gaming world for the better. Though there has been resistance from regulators (such as those in the U.K.), who believe the acquisition would stifle competition, Microsoft’s goal is to provide more games for a wider audience. Indeed, if the consumer wins, I do think the odds of the deal going through are high despite regulatory scrutiny.
In due time, I expect Microsoft will really have the opportunity to raise prices on its flagship Xbox Game Pass service as it picks up in popularity. With or without Activision in the bag, the future of gaming is likely to lie in Microsoft’s hands. At this pace, gamers will likely stay subscribed to an increasingly sticky service with a fast-growing content library.
There are numerous game subscription services, but Microsoft’s seems to be the most powerful. The Activision Blizzard acquisition could put it head and shoulders above its much-smaller rivals in the industry.
Xbox and Teams: The Keys to the Metaverse Growth?
Though gaming generates around 10% of the overall revenue pie, I’d look for it to contribute much more over time. Microsoft’s been busy consolidating the industry over the years. With a snowballing presence in the industry, the firm will be in optimal shape to transition its users into the metaverse once the time is right.
Arguably, Microsoft is the metaverse company to own as it looks to take market share away from its top rival Sony (NYSE: SONY). Sony recently shined a bright light on its second iteration of the PlayStation VR headset. As of today, there’s no headset for Xbox. That said, in due time, a headset launch could change the game (pun intended) for Microsoft as mainstream populations become more open to purchasing a mixed-reality headset.
As I’ve noted in prior pieces, gaming is likely to be a big draw of the metaverse. In that regard, Microsoft stands out on top. Aside from gaming, digital workplaces are also a huge application of the metaverse. With Microsoft Teams, the firm may very well have the keys to the metaverse for both work and play.
Is Microsoft Stock a Buy, Sell, or Hold?
Turning to Wall Street, MSFT stock comes in as a Strong Buy. Out of 30 analyst ratings, there are 28 Buys and two Holds. The average Microsoft price target is $327.41, implying upside potential of 33.4%. Analyst price targets range from a low of $275.00 per share to a high of $411.00 per share.
Conclusion: It’s Tough to Pass Up MSFT Stock
Microsoft stock’s growth drivers look as strong as ever. With some of the best software for work and play, it’s tough to pass on the stock even in a recession.
