Microsoft Stock Forecast Is Positive As It Achieved Record High. Thanks to AI.

Nov 27, 2023

Microsoft Stock Forecast Is Positive As It Achieved Record High

Microsoft stock forecast is pretty positive as when Microsoft’s stock (MSFT) is approaching a record high, the argument appears absurd. Not only that, but so many people are long Microsoft that it is technically overbought, in trader parlance, and might shortly fall precipitously. However, this likely understates the influence that artificial intelligence might have on Microsoft.

Satya Nadella, Microsoft’s CEO, inspired this call to bullishly rerate one of the world’s top stocks in reaction to the shake-up at OpenAI, which may be leading every other firm in the world in harnessing the potential of AI.

After OpenAI CEO Sam Altman was fired by his board of directors, allegedly due to an internal conflict about earnings and how the business would use AI’s potential, Nadella offered Altman a position — and then offered to recruit everyone else at OpenAI.

Altman’s unexpected return to OpenAI does not undermine the thesis: Nadella’s reaction to Altman’s original termination should be considered as a unique glimpse into a CEO’s strategic thinking.

The move should cause investors to dismiss Microsoft stock’s present value and instead do a thematic analysis, focusing on the long-term implications of a big trend. To name one example, investors who used a theme strategy in Amazon.com’s (AMZN) early trading days gained substantially.

Anything that cannot be described in a financial model is frequently overlooked by the market. For a long time, Amazon was supposed to be a loser stock – until everyone saw its long game.

In comparison to high-risk theme wagers based on a corporation overcoming a tough obstacle, such as a big sickness, Microsoft’s risks are quite low. It is a financial juggernaut that generates so much free cash flow that buying the company — even at record-high prices — potentially provides free or low-cost exposure to AI. OpenAI is 49% owned by Microsoft.

Microsoft is valued at over 36 times trailing profits, which is roughly double the S&P 500 index, indicating that the company is pricey by traditional standards. However, the company’s underlying merits may justify the premium value. Consider Nvidia (NVDA), which trades at over 120 times earnings.

We previously advised utilizing Microsoft options to profit from a stock market surge at the end of the year. Since then, the stock has risen dramatically, and those investments have provided impressive profits in less than a month.

We expected to let the deals expire profitably until the OpenAI drama. However, Nadella’s decision shows that humans have failed to truly embrace AI due to our dislike of hype and jubilant media coverage.

Many experts believe that AI will radically alter human existence. But we’ve rarely seen a solemn CEO of a big firm respond so immediately and strongly to news as Nadella did when Altman was dismissed.

Investors who followed our early-November advice to sell Microsoft’s January $325 put option for around $9.50 and purchase its January $350 call option for around $11.10 should cash in their options. Recently, the put was worth $1.30 and the call was worth $30. Profits may be used to build a larger Microsoft stake if you can hold the stock for three to five years, preferably longer.

With Microsoft’s stock currently trading at $373.07, investors may sell the March $350 put for around $9.50 and purchase the March $385 call for approximately $16.50 making new Microsoft stock forecast. The risk-reversal strategy, which involves selling a put and purchasing a call with a higher strike price and the same expiration date, positions investors to purchase the stock at a lower price and share in profits over $385.

The March expiration date gives investors time to rerate Microsoft’s shares positively and consider the final meaning of Nadella’s bold action.

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