Microsoft (MSFT) stock forecast and price prediction

Key points

• Microsoft is a leader in artificial intelligence.
• MSFT has consistently outperformed the S&P 500.
• Microsoft’s exposure to high-growth tech trends makes it an attractive investment.

Microsoft has a long history of innovation and execution. Still, its key to future success may hinge on its ability to remain at the forefront of the AI technology arms race.

And if you look at just the past decade, Microsoft stocks have outperformed while it has transitioned to a cloud computing and subscription-based software model.

Microsoft (MSFT) at a glance

Microsoft is the world’s largest software company and is best known for its Windows operating system. The company was founded by boyhood friends Bill Gates and Paul Allen in the mid-1970s.

In the company’s early days, it focused on developing an operating system for IBM, releasing MS-DOS in 1981. By the early 1990s, Microsoft had sold more than 100 million copies of MS-DOS. The company released its groundbreaking Windows operating system in 1985, but Windows began gaining traction in the 1990s.

With an initial public offering in 1986, MSFT’s IPO shares were priced at $21 per share and the company netted a valuation of $777 million.

In fact, it was one of the best investments of the 1990s, reaching a peak market cap of around $600 billion during the height of the dot-com bubble in 2000. Shortly thereafter, a judge ruled Microsoft had violated U.S. antitrust laws by suppressing competition for its Internet Explorer web browser and ordered the breakup of Microsoft. Microsoft ultimately reached a settlement with the Department of Justice in 2001 to avoid that breakup.

Over the next 20 years, Microsoft’s primary focus was shifting its business to a subscription model, investing heavily in its cloud services segment and expanding its presence in the gaming market.

Along the way, Microsoft acquired the video collaboration application Skype in 2011, professional networking platform LinkedIn in 2016, game developer and publisher ZeniMax in 2020, cloud and AI software company Nuance Communications in 2021, and “Call of Duty” and “World of Warcraft” maker Activision Blizzard in 2022. Microsoft also invested $10 billion in OpenAI in early 2023.

The company also made a big splash in the AI world in 2019 when it invested $1 billion in ChatGPT maker OpenAI and secured a deal with OpenAI for Azure. Microsoft announced an additional $10 billion investment in OpenAI in January 2023 and integrated OpenAI technology into its Bing search engine roughly a month later.

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Microsoft stock price

Since Microsoft went public, MSFT has split its stock nine times. The stock was added to the S&P 500 in 1994.

On a split-adjusted basis, Microsoft’s stock price climbed as high as $59.97 in December 1999 during the dot-com bubble. But it dropped back down to as low as $14.87 in 2009 during the Great Recession, and it took Microsoft more than 17 years to finally make it back to its dot-com bubble highs in 2017.

Since then, the stock has been on a tear. Microsoft shares reached nearly $350 in late 2021 before the 2022 tech sector sell-off dropped its stock price to under $215 in 2022. After gaining over 50% year to date in 2023, Microsoft hit a split-adjusted high of $371.65 on Nov. 14.

Microsoft stock splits

Microsoft’s most recent stock split was a 2-for-1 split in February 2003. If you crunch the numbers on all nine of the company’s stock splits, a single share of Microsoft’s IPO stock would represent 288 shares of today’s Microsoft stock.

MICROSOFT STOCK SPLITS
Date of split	Type of split
Sept. 18, 1987	2-for-1
April 12, 1990	2-for-1
June 26, 1991	3-for-2
Jun. 12, 1992	3-for-2
May 20, 1994	2-for-1
Dec. 6, 1996	2-for-1
Feb. 20, 1998	2-for-1
March 26, 1999	2-for-1
Feb. 14, 2003	2-for-1

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How has Microsoft’s stock price performed?

Microsoft’s stock has performed very well since its 1986 IPO. In the past 30 years, Microsoft has generated a total return of more than 23,000%.

Since the early 2000s, Microsoft shares have generated a nearly 900% return and investors have enjoyed a 1,050% gain over the past 10 years.

Opportunities and obstacles facing Microsoft (MSFT)

Microsoft is well positioned to continue outperforming. But it also faces several potential stumbling blocks ahead.

Public cloud computing is one of the largest growth markets in the tech world, and Microsoft’s Azure is a leading provider of enterprise cloud services. The company’s Microsoft 365 productivity software suite creates upselling opportunities and generates tremendous cash flow that the company can invest in Azure and other growth initiatives. Finally, a ChatGPT service is now on the market as ChatGPT Azure OpenAI Service. Microsoft’s relationship with OpenAI could give the company a critical first-mover advantage in AI technology.

Unfortunately, Microsoft Office is a mature product and likely has limited growth opportunities moving forward. Microsoft also needs a major presence in the key mobile device market and will continue to face intense cloud services competition from Amazon (AMZN), Google (GOOG) and other tech companies.

Developing AI technology is expensive, and Microsoft risks falling behind Google’s Bard AI and other AI technology leaders if it doesn’t stay on the cutting edge of AI development.

Strengths

• Microsoft is a market leader in the high-growth enterprise cloud services business.
• The company’s diversified portfolio of professional software applications creates cross-selling and upselling opportunities.
• Microsoft has a close relationship with OpenAI and is one of the early market leaders in ChatGPT AI technology.

Weaknesses

• Microsoft Office is a mature product with limited growth opportunities.
• The company is facing stiff cloud services competition from Amazon, Google and others.
• AI technology investments are costly and eat into profits, and there’s no guarantee Microsoft will maintain its early lead in the AI race.

What can we expect from Microsoft (MSFT) in 2024?

Analysts are generally optimistic about Microsoft’s business and stock price in 2024. The analysts covering Microsoft are projecting full-year adjusted earnings per share of $11.24 in fiscal 2024. That’s up from an earnings per share of $9.81 in fiscal 2023. Microsoft analysts are also calling for $243.21 billion in revenue for Microsoft in fiscal 2024, up more than 14% year over year.

Microsoft’s fiscal 2024 already looks rosy. The company reported 27% net income growth in its fiscal first quarter. Azure cloud revenue growth accelerated to 29% in the quarter, and Microsoft guided for 15% in the second quarter.

Morgan Stanley analyst Keith Weiss said Microsoft investors should expect the company to roll out more generative AI products in the coming months.

“Accelerating revenue growth, (operating) margins up 465 (basis points year over year in the fiscal first quarter) and 27% year-over-year EPS growth amidst a still volatile IT spending environment well illustrates Microsoft’s differentiated position. Trading at 25 times our (fiscal 2025 EPS estimate) with the Gen AI innovation wave just getting started, MSFT remains our top pick,” Weiss said in an Oct. 25 Morgan Stanley report.

Morgan Stanley has an “overweight” rating and $415 price target for MSFT stock.

CFRA analyst Angelo Zino said Microsoft’s generative AI opportunities and its ongoing transition to a cloud-based business model have the company positioned well for 2024.

“We believe that MSFT will reap greater scale efficiencies through cloud adoption and see the Activision deal unlocking new growth potential in gaming,” Zino said in a Nov. 4 CFRA report.

CFRA has a “strong buy” rating and $407 price target for Microsoft.

The 43 analysts covering MSFT stock have a median price target of $410, suggesting double-digit upside over the next 12 months. But investors should always conduct their research before making important investment decisions.

What can we expect in the coming years?

The biggest wildcard for Microsoft investors in the next several years. Microsoft is off to a strong start with its initial wave of AI product launches and its investment in OpenAI.

But Microsoft’s 2023 stock rally suggests the market is already pricing in a high degree of AI success for Microsoft, and the stock’s momentum will likely only continue in the long term if it can live up to those AI expectations.

Investors should also watch in the coming years to see how Microsoft plans to integrate Activision Blizzard into its existing gaming business and what the company’s long-term strategy will be for gaming moving forward.

Zino said investors should expect Microsoft’s AI revenue growth to accelerate over the next two years as it rolls out additional AI-based productivity tools.

“We see a slew of diverse ways that MSFT will be able to monetize the explosion of generative AI (e.g., cloud, CoPilot integration, OpenAI, Search expansion), driving considerable upside potential to our/street consensus views looking ahead,” Zino said.

Morningstar analyst Dan Romanoff said Microsoft is a clear early leader in AI technology, but he sees limited valuation upside for the stock at current levels.

“We see results as reinforcing our long-term thesis centering on the proliferation of hybrid cloud environments and Azure, as the firm continues to use its on-premises dominance to allow clients to move to the cloud at their own pace,” Romanoff said in an Oct. 25 Morningstar report.

“Azure also is an excellent launching point for secular trends in AI, business intelligence and (the) Internet of Things, as it continues to launch new services centered around these broad themes,” Romanoff said.

Morningstar has a “neutral” rating and $370 fair value estimate for Microsoft.

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