Why Microsoft won’t stop at $400

Key Points

• Shares crossed the threshold yesterday, capping a record-setting month for the stock. 
• Microsoft is now the world’s most valuable public company and more gains are on the horizon. 
• Ahead of next week’s earnings, there’s every reason to consider getting involved for the long term. 

For a brief second on Monday, shares of Microsoft Corp NASDAQ: MSFT crossed the line and saw into the great beyond. We’re talking about the $400 mark, which Microsoft hit and briefly surpassed during yesterday’s session before retreating into the close. It’s a significant milestone and one that’s been coming for some time now, perhaps as far back as November 2022, when the current rally got started. 

It means the tech giant’s shares are up a full 85% since they bottomed out back then and are in great shape to keep going. They’re once again the world’s most valuable company, having only overtaken Apple Inc NASDAQ: AAPL in the past fortnight, and everyone is expecting big things from them this year. 

For those of us on the sidelines, it’s a great time to be able to get involved. Not only is the stock at an all-time high, which almost always tends to lead to further all-time highs, but it’s also crossing a psychological level that will be a lot easier for the bulls to defend. All in all, there are more gains coming, and here’s why. 

Bullish analysts

Since the final few weeks of last year, and even before then, Microsoft has been singled out by analysts as a must-own stock for 2024 and beyond. Even with all the gains over the previous months, the team at Truist rated Microsoft a Buy in December and gave them a fresh price target of $600. To be fair, it did call this a “three-year price target,” but the 50% upside it’s targeting is still 50% upside. 

Right before Christmas, the team at Wells Fargo named Microsoft their top software pick for 2024, while Wedbush started the year by naming Microsoft as one of a handful of companies that would take the NASDAQ index to the 20,000 mark this year. Since then, Bank of America has been lauding their praises on an almost weekly basis, so it’s perhaps no great surprise that shares were able to hit and surpass the $400 mark for the first time. Indeed, the question could almost be asked: what took them so long? 

Looking ahead to the rest of the year, there are so many key tailwinds in place you can’t help but feel that $400 will soon be disappearing into the rearview mirror. The advent of artificial intelligence (AI) and Microsoft’s prime positioning to take advantage of it have been pointed to by pretty much all analysts as key drivers. The company’s Azure cloud services unit, in particular, is expected to benefit from generative AI, as is their Microsoft 365 Copilot product. 

Improving macro environment

Also in play is the improving macroeconomic environment, where the prospect of a fall in rates has sent expectations soaring for a bumper year of cloud spending by companies in 2024. The thinking here is that with debt becoming cheaper, companies can return to not only funding growth but also buying the key cloud services they need to support this. Morgan Stanley picked up on the cloud-spending point specifically earlier this month when it named Microsoft as the stock best positioned to take advantage of the boosted IT budgets coming online this year. 

There have been some concerns voiced over the company’s valuation, but with a price-to-earnings (PE) ratio of just 38, it’s hard to call Microsoft shares expensive right now. To be sure, at 70, the stock’s relative strength index (RSI) is warm to the touch, but you couldn’t call shares technically overbought right now. 

The company is due to report its fiscal Q2 earnings next week, and that will tell the market a lot about the potential this year holds. But it would take a lot for the results to be anything but surprisingly good or for management’s forward guidance to be anything short of stellar.