Microsoft (NASDAQ:MSFT) has delivered minimal gains over the past year and it has actually declined 1.61% year-to-date. This company should’ve delivered significant gains since Microsoft deserves credit for kicking off the AI revolution with its investments in OpenAI and solid data center growth. However, that hasn’t happened in the past year. Should you still buy MSFT stock? Here’s what you need to know.
Microsoft has clearly delivered solid financial performance and has made strides in the AI sector, but growth has been slowing down. The slowing growth in its Azure cloud segment is something that had many shareholders nervous after its recent earnings report. Microsoft's earnings for its first quarter of fiscal year 2025 showed that the growth of its Azure cloud decelerated to 34% year-on-year at constant currency.
In addition, investors are also questioning whether or not it can effectively monetize its AI investments. Satya Nadella talking about being good with his $80 billion went viral right before DeepSeek made a splash, and if AI models continue to get more efficient, that data center investment is unlikely to turn out well.
The stock itself trades pretty richly. It trades at 11 times forward sales and 31 times forward earnings. So, with more of the same in the past year, investors didn’t have any leeway to slap a bigger premium on the stock.
Wall Street analysts still remain pretty optimistic despite the recent spook from DeepSeek and the cloud growth slowing down a little. The consensus price target of $511 still implies 24.2% upside potential from here.
The highest price target goes up to $600, and even the lowest price target of $425 should lead to some upside down the line.
If it can post better cloud growth and show that its AI investments are paying off well in the next quarter, there’s a good chance MSFT stock could restart its rally.
The cloud computing market is projected to grow significantly. End-user spending on cloud services could increase by 21.5% globally to $723 billion in 2025. Moreover, the broader AI industry hasn’t slowed down post-DeepSeek but has instead doubled down on the spending to make AI models more powerful by making use of DeepSeek’s breakthrough in efficiency.
Microsoft has a huge moat beyond data centers and AI and the company can afford to take a hit on its AI investments and operate just fine. White Collar businesses can’t operate without Office 365 products and Windows, so Microsoft remains a buy for the long run. If you see turbulence ahead, taking some profits is reasonable, but keeping MSFT in your portfolio is a good idea.
