The Next Big Rally in Microsoft Stock Could Start Like This
MSFT has demonstrated powerful rallies, surging over 30% in under two months multiple times, notably in 2015 and 2023. These rapid gains have rewarded investors handsomely during key upswings. If past patterns hold, upcoming catalysts could drive Microsoft stock to fresh impressive highs, continuing its history of strong momentum and significant shareholder value creation.
Microsoft’s shares have steadily climbed, fueled by robust earnings beats and its commanding lead in the burgeoning AI landscape. With Azure cloud revenue soaring and AI initiatives like Copilot gaining traction, the tech titan’s strategic investments are clearly paying dividends. This strong operational momentum, evidenced by consistent quarterly outperformance and a burgeoning cloud backlog, lays a fertile ground for continued upside as its AI ecosystem further permeates the enterprise.
Triggers That Could Boost The Stock
- AI Profit Surge: Unforeseen acceleration in Microsoft 365 Copilot and GitHub Copilot adoption, with higher-than-expected per-user revenue, driving AI annual run rate significantly past $15B and exceeding the $10B 2026 forecast.
- Azure Dominance: Azure definitively overtakes AWS as the global cloud leader by late 2026, driven by superior AI infrastructure and services, signaling a major market re-rating beyond current analyst predictions.
- Gaming Ecosystem: Strategic integration of Activision Blizzard titles, combined with surging Xbox Game Pass subscriptions and successful mobile gaming expansion, establishes Microsoft as an undisputed leader in interactive entertainment.
How Strong Are Financials Right Now
Below is a quick comparison of MSFT fundamentals with S&P medians.
- Revenue Growth: 15.6% LTM and 13.2% last 3-year average.
- Cash Generation: Nearly 26.6% free cash flow margin and 46.3% operating margin LTM.
- Valuation: Microsoft stock trades at a P/E multiple of 36.1
| MSFT | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Systems Software | – |
| PE Ratio | 36.1 | 23.4 |
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| LTM* Revenue Growth | 15.6% | 6.1% |
| 3Y Average Annual Revenue Growth | 13.2% | 5.4% |
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| LTM* Operating Margin | 46.3% | 18.8% |
| 3Y Average Operating Margin | 44.6% | 18.2% |
| LTM* Free Cash Flow Margin | 26.6% | 13.5% |
*LTM: Last Twelve Months | If you want more details, read Buy or Sell MSFT Stock.
Microsoft’s strong and consistent revenue growth, coupled with robust cash generation as evidenced by its impressive free cash flow and operating margins, underscores the solid fundamentals that support the stock’s valuation. While these factors highlight the company’s financial health, it is also important to consider the potential investment risks, particularly how the stock might respond during market downturns.
Risk Quantified
When sizing up risk, it’s worth looking at how MSFT holds up in tough markets. It plunged about 65% in the Dot-Com crash and nearly 58% in the Global Financial Crisis. The inflation shock knocked it down around 37%, while the Covid sell-off and 2018 correction triggered drops of roughly 28% and 18%, respectively. Even a top-tier name like Microsoft isn’t immune when the market swoons hard. Quality cushions the fall but doesn’t eliminate risk.
Still not convinced about MSFT stock? Consider portfolio approach.
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