Microsoft Stock and The Case For A $500 Price Tag

Key Points

• Microsoft shares have been taking a breather since topping $400 in January. 
• However, there were fresh calls for further gains this past week, with one analyst calling for $500. 
• Having consolidated around January’s record close, Microsoft shares are primed to make that kind of move in the coming weeks. 

With equities, in general, enjoying their best run in years, it will be no surprise to most that the tech stocks, in particular, are performing well. Much of this has to do with encouraging signs that inflation has been tamed, as this builds the case for the Fed to cut interest rates, which in turn helps debt-heavy tech stocks. 

But with so many stocks already back trading at all-time highs, a feat that seemed all but impossible just a couple of months ago, you’d be forgiven for wondering just how much room they have to run. 

Take Microsoft Inc NASDAQ: MSFT for example. Last summer, the tech titan was one of the first tech stocks to reclaim its 2021 high, but since November, it’s been powering to fresh ones seemingly on a weekly basis. The stock crossed the $400 mark for the first time less than two months ago, but rather than thinking this is where it’s going to take a breather, investors should be getting even more excited about its prospects. In fact, there are several reasons to think $400 was just the latest milestone in what’s currently a 90% rally, with the stock already setting its sights on $500. 

Fresh Bullish Comments

This past week alone saw bullish comments from some of the heavyweight analysts calling for the stock to run up through the $400s in the near term. This was the stance, for example, by the guys over at Jefferies, who reiterated their Buy rating on Microsoft stock this past Wednesday and, with a $465 price target, called for an immediate upside of some 15%. 

This came after they attended the Microsoft 365 Copilot briefing and left with a super bullish sentiment. There’s been strong adoption of the new tool already within IT departments, and this bodes well for the company’s revenue prospects in the quarters ahead. They also see Microsoft shares continuing to benefit from the boom in artificial intelligence (AI), and noted that even with the recent run, Microsoft is still attractively valued against its peers. 

Their bullish outlook echoed that of the DA Davidson team, who on Tuesday also reiterated their Buy rating but gave Microsoft shares a street-high price target of $500. For Microsoft to be getting these kinds of calls is not bad going at all, especially considering that as recently as eight weeks ago, it was still trading in the $300s. 

Beyond the bullish calls from respected analysts, the case for Microsoft as a $500 stock is also being strengthened by the improving technical setup of its shares. Having run so hard since November, simply getting to the $400 point might have been a goal in and of itself, and it wouldn’t have been surprising for shares to fall back from here as the first real test. But instead, since crossing the level for the first time at the end of January, they’ve poked their head up as far as $420 but mostly consolidated. 

Weighing Up A Position 

While some investors might understandably be frustrated that further gains haven’t materialized like with other tech stocks, such as NVIDIA Corporation NASDAQ: NVDA, technically, this is actually very promising. Every day that Microsoft shares stay above $400, even if it means they trade a little flat or sideways, is another day of that level being reinforced as a serious line of support. Should there be any volatility in the coming weeks, be it Microsoft or market-specific, with nearly two months' worth of consolidation under its belt, you can be sure that the $400 line won’t be given up easily. 

It also meant that the stock’s Relative Strength Index (RSI) was given a breather. After topping $400 at the end of January, it was almost 80, which indicated extremely overbought conditions. But the consolidation has allowed it to cool considerably, and with a current reading of 55, Microsoft has a ton of room to run to the north once it decides to break out. 

Watch for momentum to build on the bid into the next week, with last month’s high of $420 the first target. After that, things could get very interesting very quickly.