Microsoft Stock (NASDAQ:MSFT) has been generating significant attention recently with its announcement of a groundbreaking quantum chip, Majorana 1. This new chip is built on a topological superconductor, which uses Majorana fermions, a unique state of matter. This technology could revolutionize quantum computing, enabling the creation of faster and smaller qubits that could eventually lead to the ability to fit a million qubits onto a chip small enough to fit in the palm of your hand.
While the news of Majorana 1 initially sparked excitement in the quantum computing stock sector, including a brief surge in related stocks, Microsoft’s share price has struggled. The stock has fallen 8.8% in the past month and 1.3% over the past year. So, the question remains: Should investors buy, sell, or hold Microsoft stock at this juncture? Let’s explore the situation further.
Microsoft Earnings Report: A Mixed Beat
In Microsoft’s latest earnings report for fiscal 2025, the company beat Wall Street’s earnings estimates, posting a 12% year-over-year revenue growth to $69.6 billion. The strong earnings report was bolstered by solid growth in Microsoft’s cloud services, particularly Azure, which saw a 31% revenue increase. However, this came in at the lower end of the company’s guidance, which caused some concern among investors.
Another key focus of Microsoft’s earnings call was its continued investments in artificial intelligence (AI). Microsoft reported an annual AI revenue run rate exceeding $13 billion and committed to spending $80 billion on data centers in the current year. Despite these strong investments, the company has also canceled leases for significant portions of its data center capacity, which could impact growth in the short term.
Although the earnings report showed growth, the overall sentiment surrounding Microsoft’s future prospects remains somewhat cautious, particularly in light of its cloud growth slowing and uncertainties about its AI investments.
Is Microsoft Stock Overvalued or Undervalued?
Microsoft is undoubtedly a solid company with a wide moat, and it has been a leader in the tech industry for years. The company has benefited greatly from its early investments in AI, notably its partnership with OpenAI. Microsoft’s flagship products like Windows and Office 365 continue to generate substantial revenue, ensuring the company’s financial stability.
However, some analysts are concerned that too much of the company’s valuation is tied to its AI prospects. Microsoft trades at over 12 times sales and almost 32 times forward earnings. If Microsoft’s AI initiatives fail to maintain their competitive edge, there’s a risk that the stock could lose its premium valuation. Analysts are forecasting growth of 10%-14% for both revenue and earnings in the coming years, which may not be enough to justify the current high multiples.
That said, Microsoft still has a lot of room to grow, and many analysts are maintaining a bullish outlook. The average price target for Microsoft stock is $510.35, implying a 26% upside from its current price. The highest target is $600, while the lowest target of $425 still indicates no downside risk from the current level.
Should You Buy Microsoft Stock After Majorana?
So, should investors buy Microsoft stock just because of the Majorana 1 breakthrough? The answer is not so clear-cut. While quantum computing represents the next major frontier in technology, Majorana 1 is still in its early stages, and its commercial viability could be more than a decade away. Other companies in the quantum computing space could catch up to Microsoft in that time frame, reducing the impact of this development on Microsoft’s bottom line.
At its current valuation, Microsoft stock remains a premium investment, and investors are being asked to pay a lot for its future growth potential. However, if you believe in Microsoft’s ability to continue executing well in its AI and cloud businesses, it may be worth holding for the long term. As long as the broader market remains healthy, Microsoft stock can still be considered a buy for long-term investors who are patient and looking to capitalize on the company’s ongoing evolution.
Conclusion: A Long-Term Buy for Investors
While the news of Majorana 1 is certainly exciting, it is still too early to assess its full impact on Microsoft stock (NASDAQ:MSFT). Investors who are looking for long-term growth may consider holding or buying Microsoft, especially given its ongoing AI and cloud investments. However, if you’re focused on short-term gains or looking for a quicker return on your investment, Microsoft might not be the right choice at this time due to the uncertainties surrounding its quantum computing breakthrough.
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