Microsoft has started the second half of 2024 with a bang, with its shares hitting new closing highs on Monday and Tuesday, and an intraday high on Friday. Even better, they still have room to go. Investors are attracted to the company's early leadership in the fast-growing field of artificial intelligence. Year-to-date, Microsoft shares are up roughly 24%, but that's less than the S&P 500's 15% gain. Expectations for Microsoft as an AI stock and demand for its cloud computing business show no signs of slowing down. The company's generative AI assistant is likely to accelerate PC refresh cycles in 2024, further boosting sales of Microsoft devices and providing another catalyst for the stock's rise. Microsoft is “so big and so powerful that [the stock’s performance] “Microsoft is just banking on its ability to dominate anything it wants, whether it's personal software or enterprise software,” Jim Cramer said recently, citing the company's big AI investment in OpenAI, the startup behind ChatGPT. Microsoft's stake in OpenAI gives the company cutting-edge technology integrated into products like its AI assistant Copilot and its cloud computing business. To be sure, the company's stock is not without its challenges. Management has made huge bets on AI, with a reported $13 billion investment in OpenAI alone. Investors will want to see how these investments pay off. That means there will be a near-term focus on AI revenue growth when the company reports fourth-quarter earnings in late July. But in the long term, the company's leadership and continued investment in AI in general should drive bigger growth and send the stock above this week's record. After Microsoft's last earnings release in April, we raised our target price on Microsoft shares from $450 to $500 a share and currently rate it 2. That means that if the stock price recovers, we see it as an opportunity to buy more. MSFT Year-to-date peak Microsoft (MSFT) cumulative performance 1. Cloud The main reason for our optimism is that Microsoft's Azure, the world's second-largest cloud computing platform after Amazon, has become a major provider of artificial intelligence tools to other companies. Increased adoption of AI means more developers will turn to this highly profitable cloud business. According to third-quarter earnings, revenue from Azure and other cloud services surged 31% year over year. This was well above analysts' expectations of a 28% increase. Microsoft also issued an optimistic Azure revenue outlook as more customers join the platform. After announcing quarterly earnings in April, management said the number of Azure transactions of more than $100 million increased 80%. 2. PC refresh Another catalyst is the PC refresh cycle. In May, the company unveiled a new series of computers, the Copilot+ PCs. These are equipped with advanced chips that can run AI tools on Windows without draining the device's battery life. Copilot+ PC, priced at $999 per unit, was launched last month. Such AI-powered devices have innovative features that will drive more PC purchases and upgrades. The result? Increased sales in the personal computing division, which accounts for about 25% of Microsoft's total revenue. Microsoft's rollout of AI-powered devices comes four months after CEO Satya Nadella said in the company's third-quarter earnings call that “AI will be a first-class component of every PC this year.” 3. Copilot Subscription Finally, the company can generate good recurring revenue from the Copilot AI add-on for Microsoft 365. Enterprise customers pay $30 per user per month for the subscription service, which gives access to AI capabilities across productivity apps like Word and Excel. For individuals, there are cheaper plans, such as Copilot Pro, which costs $20 per month. Wall Street analysts are optimistic about Copilot. Piper Sandler previously projected that the tool could generate more than $10 billion in revenue by 2026. (Jim Cramer's Charitable Trust is long MSFT and AMZN. See the full list of stocks here.) Subscribers to Jim Cramer's CNBC Investment Club receive trade alerts before Jim makes any trades. Jim waits 45 minutes after sending a trade alert to buy or sell shares in the Charitable Trust's portfolio. If Jim talks about a stock on CNBC television, Jim waits 72 hours after issuing a trade alert to execute the trade. The Investment Club information above is subject to our Terms of Use and Privacy Policy, as well as our Disclaimer. The receipt of any information provided in connection with the Investment Club does not and will not create any fiduciary duty or obligation. No specific results or benefits can be guaranteed.
Microsoft CEO Satya Nadella spoke at the Microsoft Build conference at Microsoft headquarters in Redmond, Washington on May 21, 2024.
Jason Redmond | AFP | Getty Images
Microsoft The second half of 2024 has started off with a bang, with shares hitting new closing highs on Monday and Tuesday, and an intraday record high on Friday. Even better, shares still have some upside potential.
