Analysts bullish on Microsoft due to AI demand growth and partnership with OpenAI

From Nasdaq: 2025-01-21 07:15:00

Analysts predict Microsoft (NASDAQ: MSFT) is well-positioned to benefit from the growing demand for AI-powered applications like AI agents, with the market expected to reach $47 billion by 2030. Microsoft’s partnership with OpenAI has accelerated its AI push, with revenue from its AI business expected to hit $10 billion. However, analysts caution that Microsoft’s valuation is expensive compared to other tech companies offering higher growth prospects at lower P/E ratios.

Although Microsoft’s AI initiatives have not shown significant acceleration in revenue growth, the company’s productivity software business is expected to grow by 10-11% in the December-ending quarter. Analysts project a 13% revenue increase for the full year, with earnings growth estimated at 13% annually. Despite this, Microsoft’s high P/E ratio of 35 suggests the stock may be overvalued compared to peers with better growth prospects.

While Microsoft remains a leader in AI and productivity software, analysts suggest other tech stocks like Alphabet and Meta Platforms offer higher earnings growth potential at lower valuations. With a historical average earnings growth rate of 23% over the last 10 years, Microsoft’s current P/E ratio of 35 may not justify its growth prospects. Investors are advised to consider alternative tech stocks for potentially better returns.

Investors are warned against considering Microsoft a “strong buy” due to its high valuation, especially when compared to other top tech stocks with lower P/E ratios and higher growth prospects. With AI not yet proving to significantly accelerate Microsoft’s revenue growth, the stock may be more suitable as a hold rather than a strong buy. Consider exploring other tech stocks for a potentially more profitable investment opportunity.



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