Microsoft: Why The AI Hype Is Real, But The Market Isn’t Foolish

Summary:

  • Microsoft’s ability to monetize AI has gained credibility with the market, bolstered by its partnership with OpenAI’s leading AI models.
  • The company’s ability to bundle AI with existing products gives it a sustainable advantage over its hyperscaler and smaller enterprise SaaS peers.
  • However, MSFT’s implied overvaluation suggests the market isn’t foolish and knows it too. I assessed why two full years of impeccable performance is needed to justify its valuation.
  • With MSFT likely priced for perfection, the risk/reward of adding more shares at the current levels isn’t attractive.

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David Becker

Microsoft Corporation (NASDAQ:MSFT) has upped the ante on generative AI as it heads into its fiscal second-quarter or FQ2’24 earnings release on January 30. MSFT has outperformed my expectations since my previous October 2023 update


Analyst’s Disclosure: I/we have a beneficial long position in the shares of AMZN, GOOGL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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