
- Microsoft is increasing its spending on AI capabilities and has experienced a strong rebound in top-line growth due to its early success in AI monetization.
- The company’s AI product, Copilot, has attracted 1.3 million customers and is driving growth across the broader GitHub platform.
- The management mentioned a continued increase in capex on AI infrastructure in FY2025 while managing to maintain margins.
- The stock is currently trading at a premium valuation, reflecting its strong growth rebound in cloud and other AI initiatives compared to its software peers.
- MSFT is highly correlated with broader indexes, which diminishes diversification benefits and exposes investors to higher systematic risk.
Investment Thesis
Microsoft (NASDAQ:MSFT) is undoubtedly experiencing many tremendous growth tailwinds under the current GenAI boom. The company has significantly increased its capex by more than 50% YoY over the past three quarters in FY2024. In my previous articles, I have been bullish on MSFT because I believe that faster-than-expected AI monetization can significantly boost its revenue growth. Since my last coverage about a year ago, the stock has achieved a return of 25%, ahead of the S&P 500 benchmark by 7.5%.
Despite these factors, I continue to see massive growth opportunities for MSFT, as the company continues to increase spending on enhancing its AI capabilities amidst the highly competitive industry, emphasizing its ambition to leading AI dominance. The recent strong Q3 FY2024 earnings results also confirmed my bullish thesis on the stock despite its premium valuation. The stock has rallied 15% YTD, which is almost in line with the broader index. Therefore, I reiterate my bullish view on MSFT, as the growth rebound thesis justifies a higher valuation and will continue in coming quarters.
READ FULL ARTICLE HERE!