Microsoft Stock Price Forecast October 2021 – Time to Buy MSFT Stock?
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While tech names have come off their 2021 highs. Microsoft (MSFT) stock has been strong and hit a new record high on Friday. The stock is up over 42% for the year and its market cap is $2.32 trillion, which is only a tad short of Apple, the world’s largest company by market cap.
Meanwhile, investors are wondering what’s the forecast for Microsoft stock after the steep rise in 2021. Will the stock continue to rise or could there be a correction?
MSFT stock technical analysis
MSFT stock is looking bullish on the charts. The stock trades above all the key moving averages as it is trading near all-time highs. Earlier this month, the stock crossed above the 50-day SMA (simple moving average). It has since been in an uptrend and has been hitting higher highs. The 12,26 MACD (moving average convergence divergence) also gives a buy signal for Microsoft stock. The 14-day RSI (relative strength index), which is currently at 64.4 is a neutral indicator.
Third-quarter earnings season
Microsoft would release its fiscal first-quarter earnings tomorrow. Notably, a third of S&P 500 and Dow Jones components report their quarterly earnings this week. Apart from Microsoft, other tech giants like Apple, Amazon, Alphabet, and Facebook have also scheduled their earnings for this week. The earnings season has been pretty good so far and the majority of companies have posted better than expected earnings. However, markets would be particularly interested in the earnings of tech giants. Not only their price action, the earnings of tech giants have an impact on the broader markets also.
Analysts polled by TIKR expect Microsoft to report revenues of $43.9 billion in the quarter, a year-over-year rise of 18.4%. The company’s earnings growth is expected to fall to around 13.5% in the next two quarters. MSFT’s adjusted EPS is expected to rise 14.2% to $2.08 in the quarter.
Meanwhile, the global chip shortage situation might also have some impact on Microsoft’s earnings. The shipments of PCs have been affected as PC makers don’t have enough chips to satiate the demand. Intel now expects the chip shortage situation to extend into 2023 also. That said, thanks to Microsoft’s diversified business model, the earnings would not be much impacted by the negative impact on the PC market. The company has a flourishing cloud business. LinkedIn is also a significant contributor to the company’s earnings.
MSFT stock price forecast
Most Wall Street analysts are bullish on Microsoft stock. Of the 36 analysts covering the stock, 33 rate them as a buy or some equivalent while the remaining three analysts rate it as a hold. None of the analyst rates MSFT stock as a sell.
Its median target price of $331 implies a 7% upside over the current levels. The stock’s street high target price of $384 is a premium of 24% while the street low target price of $280 is a discount of 9.4%.
Last week, Morgan Stanley reiterated MSFT stock as overweight while pointing to the momentum in the stock ahead of the earnings release. “Revenue outperformance may prove operating margins more durable than feared, driving EPS upside. Our model suggests durable high-teens EPS growth,” it said in its note. The brokerage also finds Microsoft’s valuations as “reasonable.”
Microsoft stock valuation
MSFT stock now trades at an NTM (next-12 months) PE of 35x. The multiples have averaged 27x over the last five years and 20.6x over the last 10 years. The valuation premium is reflective of the changed perception of the company. From primarily selling Windows and Office products, Microsoft has now established itself in several leading markets.
The company’s valuation multiples have expanded significantly under Nadella’s leadership as he has positioned the company as a tech and software company by pivoting towards high-growth industries.
MSFT stock long-term forecast
MSFT is among the beneficiaries of the digital transformation. The demand for PCs, which have been sagging for years, has seen a spike over the last year. Also, the pivot towards cloud and AI would support the company’s long-term earnings as well as valuation. The company has also announced a new $60 billion share buyback program which would help it increase the EPS by lowering the outstanding share count.
Overall, despite the recent spike in MSFT stock, it still looks among the best ways to play the digital transformation. The stock should continue to deliver strong returns in the medium to long term as it expands into emerging high-growth industries.