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Cedears Alert: they highlight the potential for growth of a technological giant tied to AI

Cedears Alert: they highlight the potential for growth of a technological giant tied to AI

At the end of April, Microsoft presented more than excellent resultswith an increase of 17% on profits, a 23% increase in operating income and a 20% improvement in both net income and earnings per share (EPS) compared to the previous year. Despite this, for some analysts the role of Big Tech still has room to continue rising and it would be “cheap“, so it might be a good time to add this Transfer to portfolio.

The idea of ​​these lines is to find out if the action of Microsoft It has the potential to really rise and if it is at a low purchase price, to be able to add the paper to the portfolios. All this, taking into account the fundamentals of the company, since it is worth remembering that its managers highlighted the opportunities in artificial intelligence and revenue from the cloud, noting that Microsoft Copilot and Copilot Stack They are leading a new era of transformation in this field.

To understand the potential value of Microsoft It is necessary to review some numbers. The firm ended the quarter with $80 billion in cash and short-term investments, exceeding its debt of $65.4 billion, according to published data. Operating cash flow in the nine months ended March 31 increased to $81.4 billion from $58.8 billion, with free cash flow of $50.7 billion. Thus, its strong adoption of AI and the increase in cash flow operational position it as one of the best investment options in the current market.

Microsoft and the potential of its action

Microsoft reported that during the nine-month fiscal period it generated $50.6 billion in free cash flow (FCF) or free cash flow. This can be seen by deducting $30.6 billion in capital expenditures from its operating cash flow of $81.353 billion during that period.. That huge amount of cash flow represents more than 28% of its $180.395 billion in revenue for the fiscal 9 months.

That’s a massive house flow margin, that few companies can match or even dream of. Furthermore, Microsoft consistently produces these high margins. Therefore, it is useful to project future FCF. For example, if the company paid out 100% of this FCF in dividends, its market valuation would likely end up with a dividend yield of 2%. Thus, dividing US$78.7 by 2% results in a forecast market capitalization of US$3.935 billion.

That represents an increase 26% on Microsoft’s current market capitalization of US$3,126 billion. In other words, the company’s stock could be worth up to 26% more than its current price per paperbut let’s see what the analysts consulted by Ambit.

Microsoft Cedear: time to purchase?

As the investment advisor explains well, Gaston Lentiniin statements to this medium “from the fundamental point of view, “All the big technology companies are generating new alliances, new developments in artificial intelligence and, above all, new profits,” Therefore, these levels, compared to those at the beginning of the year, are unthinkable.

Lentini maintains that “that’s the beauty of the market“, but warns that if to buy Microsoft today, his recommendation is “wait for it to exceed US$430, which is the last maximum of the stock, to be able to think precisely about an impulse that exceeds those values“.

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For the analyst, when comparing Microsoft with other large technology companies such as GoogleFor example, the situation is quite similar. Both are in all-time highs or very close and continue to generate, before each presentation of balance sheetsbest results. “That’s what surprises us all, all the analysts or many investors,” Lentini slips.

And it is no wonder, because as he points out Damian PalaisFinancial Advisor of Cocos Capital, Microsoft is a leading company in the technology sector and “the company with the highest valuation in the world“.

The potential of $MSFT

Palais maintains that this week Microsoft announced the launch of new computers and tablets designed by them, days after Apple, the company led by Steve Jobs, present your iPads that will go on sale shortly. Both companies present changes with respect to their predecessor devices, but Microsoft, under the vision of Cocos, shows more attractive improvements, linked to the operation of its tablets, since they mainly focused on generating strong integration with Artificial Intelligence.

In this context, the strategist asserts that regarding Microsoft’s share price, although it is trading at historical highs, which always presents hesitancy to buy, is that it is the most valuable company in the world above its competitors. For this reason, it could be considered that the US$430 per share would be justified, although with certain demands on the part of investorssince their valuations are above their historical averages, due to the latest quarterly results presented, where beyond exceeding market estimates linked to the company’s revenues and profits, they present double-digit growth in the core segments of the business (Microsoft Cloud, Office, Linkedin, Xbox Services).

Finally, and addressing the risks that must be taken into account when choosing a company like Microsoft to invest in, we must consider the competition of companies in the artificial intelligence sector. Palais indicates that the main technology companies (Google, Apple, Amazon, among others) They are developing their own Artificial Intelligence systems and although the company founded by Bill Gates is at the forefront of innovations in this field, Rapid advances throughout the segment pose strong challenges to maintain its leadership position.

Source: Ambito

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