Meta Platforms’ (META) earnings miss earlier stirred the pot in the artificial intelligence space, even though it was due to a surprise one-time tax charge of $15.9 billion. Microsoft (MSFT) investors would be wrong to overreact.
Meta is playing catch-up, and Microsoft is a fine middleground between Apple (AAPL)-like inaction on AI and Zuckerberg’s all-in wager.
MSFT stock still slumped, and it is down 3% today as of this writing. Its first fiscal quarter earnings report began with a deluge of news that shareholders had to digest. The most important one was that the company was forfeiting a small chunk of its original 32.5% stake in OpenAI. It settled on 27%. In exchange, OpenAI has agreed to buy an incremental $250 billion of Azure services.
I see this as a positive. Microsoft’s entire stake in OpenAI is worth $130 billion. Plus, the company is boosting its AI capacity by 80% this year, promising to double its total data center footprint in the next two years.
Why I’d buy MSFT stock hand over fist today
Microsoft now plans to spend even more on AI infrastructure. Capacity will still remain short of demand, and this build-out could potentially lead to Azure overtaking AWS. The cloud business grew 40%.
When you combine that with the OpenAI stake, its own in-house AI development, and the extremely profitable Office software stack, MSFT stock becomes very attractive. It even has an active quantum computing program. Its Majorana 1 quantum chip “…can be easily deployed inside Azure datacenters.” It’s too early, and likely too expensive to do that just yet. But that’s another feather that a competitor like Meta lacks in its hat. Furthermore, cash from software remains far more reliable than cash from ads.
MSFT stock is currently trading just below its 20-day moving average, near $520. I’d expect the stock to snap back to new highs as the market digests these earnings. The breakneck growth of Azure can take it above $600 by mid-2026.
— Omor IE
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Source: Money Morning