As you likely know full well, the big next event for Microsoft (NASDAQ:MSFT) and Microsoft stock is fast approaching. That would be the company’s quarterly earnings release, scheduled to occur post-market on April 25.
Tech stock investors have been fearful this earnings season. So far this month, tech stocks, particularly tech stocks with high exposure to the generative artificial intelligence trend, have pulled back, on concerns that upcoming results will show that the AI boom is slowing down.
However this may actually be a good thing for MSFT, when it comes to its potential post-earnings price performance. With expectations walked back, it may not take much for the company to surprise the market.
Whether shares surge or sink after earnings, don’t read too much into it. Irrespective of near-term price performance, this stock remains poised to keep on climbing. Here’s why.
Microsoft Stock Earnings Preview
Uncertainty about AI chip demand trends has spilled over into stocks in the AI space, including shares in companies like Microsoft, which are capitalizing on the trend through both the integration of AI into existing software platforms, as well as by launching new AI-based platforms.
Yet while the jury’s still out whether demand for AI accelerators and servers is about to cool down, that may not be the case when it comes to gen AI software demand. At least, that’s the view of many analysts ahead of the aforementioned MSFT stock earnings release.
As Barron’s reported April 18, Evercore ISI’s Kirk Materne and Citi’s Tyler Radke are bullish that the company will report strong results and guidance, thanks to both the rollout of new AI software products like Copilot, as well as the integration of AI features into the company’s Azure cloud computing platform.
Again, with the market’s mixed expectations ahead of earnings, it may not take much in terms of a revenue and earnings beat to send Microsoft surging, but it’s far from certain this will happen. Investors could end up reacting to strong results by “selling on the news.” That’s what happened after the last quarterly earnings release.
A Path to $500 and Beyond
Microsoft stock may move following earnings, but chances are it won’t be a big move. However, long-term, MSFT remains well-positioned to make a massive leap in the right direction. Yes, to the valuation-conscious, this stock may appear fully-priced, if not overvalued.
Shares currently trade for 34.3 times forward earnings. This represents a hefty valuation premium to other software-focused “Mag 7″ stocks.
Take a closer look, and it’s clear why the market has, and is likely to continue, to be willing to price Microsoft at a premium to peers. Namely, there’s a strong chance future growth forecasts are being overly conservative.
As Barron’s recently reported, AI integration may be helping Azure close the market share gap between it and Amazon’s (NASDAQ:AMZN) AWS, the longtime market leader.
As we’ve pointed out before, the launch of Copilot-branded applications could eventually generate tens of billions in additional annual revenue. There may even be a path for AI integration to bolster Microsoft’s video game segment.
Considering these growth catalysts, it makes sense that some forecasts call for Microsoft’s earnings to top $15 per share within two years. Even without multiple expansion, such earnings growth could propel MSFT to prices above $500 per share.
Still a Top Choice to Buy and Hold
Keeping long-term prospects in mind, no matter how the market reacts to Microsoft’s latest fiscal results, don’t view it as a sign to sell if you own it, or to stay away if you’ve yet to enter a position.
As discussed above, there’s plenty more in the way of growth that will justify an eventual move to even higher prices for MSFT. Hence, shares will not become overvalued if they immediately rally after April 25.
An after-earnings price decline likely will not mark the beginning of the end for this AI winner’s hot run since 2023.
As before, Microsoft stock remains the top choice to buy and hold, when it comes to capitalizing on the AI growth trend.
Microsoft stock earns an A rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.