Cramer names Microsoft (MSFT) as the No. 1 undervalued megacap to buy

VaselineSeptember 4, 2024

0 3 minutes read

Cramer names Microsoft (MSFT) as the No. 1 undervalued megacap to buy

Microsoft’s generative AI prospects are impressive. But the stock has more to offer investors than new technology. Jim Cramer said Microsoft stock could go lower on Wednesday — and of all the megacap tech stocks, this club’s name is the one to buy. Microsoft closed at a record high of $467 on July 5. But then, almost immediately, it started to decline. It received no help from its July 30 earnings report and recently hit a low in the August 5 market crash. The stock’s subsequent recovery stalled at the end of last month and fell again. Exacerbated by Tuesday’s tech meltdown, shares on Wednesday returned to where they were on Aug. 2 at $408 each. MSFT YTD mountain Microsoft YTD Wells Fargo is more aligned with Jim, pointing to three “underappreciated levers” — search, cybersecurity and enterprise software — that could help Microsoft’s overall revenue growth. Analysts have added the stock to their “Signature” list – maintaining an equivalent Overweight Buy rating and a $515 price target. Club has a $500 price target on the stock. Microsoft’s Bing search engine could win more search market share from Alphabet, Wells Fargo said in a research note on Wednesday, citing the loss of an antitrust case last month over exclusivity deals with device makers like Apple. If Google Search is no longer the iPhone’s default search engine, then more business could come to Microsoft. To be sure, search is small at Microsoft compared to Alphabet. Google search has about 88 percent market share in the U.S., compared to just over 7 percent for Bing, according to web data provider StatCounter. The numbers around the world are even more skewed in Google’s favor. Wells Fargo also highlighted Microsoft’s cybersecurity business. “Microsoft has quietly become the largest cybersecurity vendor on the planet while continuing to operate in adjacent areas,” the analysts wrote. Like others in the sector, Microsoft’s cybersecurity business may continue to attract large corporations as customers because the threat of hacks and breaches remains high. Microsoft took some heat when the CrowdStrike upgrade in July caused a major global IT outage. In 2023, Microsoft CEO Satya Nadella said the company’s cybersecurity business had surpassed $20 billion in revenue in a 12-month period. Microsoft’s customer relationship software suite, called Dynamics, could have even more advantages, Wells Fargo said. Analysts see “significant potential for cross-selling.” That’s because the company already has a massive customer base from its Azure cloud computing business and the productivity apps included in Office. Conclusion These three underappreciated areas are encouraging, even if Microsoft’s generative AI efforts are still crucial to the Club’s investment thesis. While Azure’s revenue missed expectations last quarter, we still expect growth in the back half of the year given management’s upbeat comments about its outlook. Wall Street firms seem to agree with us. Adding to Wells Fargo’s optimism, Piper Sandler on Wednesday added Microsoft to its high-conviction buy list because of these AI tailwinds. (Jim Cramer’s Charitable Trust is long MSFT, GOOGL, AAPL, NVDA. See a full list of stocks here.) As a subscriber to the CNBC Investment Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade . Jim waits 45 minutes after sending a trade alert before buying or selling a share in his charitable trust portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO THE TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR OBLIGATION DUE TO YOUR RECEIPT EXISTS OR IS CREATED. OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT IS GUARANTEED.

Microsoft Corporation Executive Chairman and CEO Satya Nadella speaks during the ‘Microsoft Build: AI Day’ event in Bangkok, Thailand, May 1, 2024.

Chalinee Thirasupa | Reuters

of Microsoft the prospects for generative artificial intelligence are impressive. But the stock has more to offer investors than new technology.

VaselineSeptember 4, 2024

0 3 minutes read

Vaseline

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