Microsoft is the most unpopular stock among bigtechs. But that could change soon

Microsoft shares are showing the worst performance among the "Magnificent Seven" securities in the current quarter. They have barely moved since the summer, when the company reported impressive results and gave a strong revenue forecast for its flagship Azure cloud business. However, Melius Research analyst Ben Reitzes believes the situation could change for the better in the coming months.

According to Reitzes, the turning point for Microsoft shares will come this fall - ahead of the publication of the report for the first fiscal quarter next month and the Ignite technology conference in November, writes Barron's. Microsoft's upcoming report could be a catalyst for recovery, especially if the company discloses additional data on the use of AI tools Copilot, the analyst believes.

"Microsoft still deserves a significant premium [on the forward P/E ratio]," Reitzes said. He estimated Microsoft's forward P/E at 28, based on an earnings forecast of $22.06 for the fiscal year ending June 2028. For Google, whose shares soared 45% in the current quarter, Reitzes' calculated forward P/E was 23.

The analyst emphasized that Microsoft's cloud business is larger and its operating margin is higher. He also believes that the monetization potential of the Copilot AI assistant as part of Microsoft's office suite is underestimated by the market, while Microsoft's partnership with OpenAI, which is now transforming into a commercial structure, is a key growth driver.

His target price on Microsoft shares is $625, just below the Wall Street median. His target price on Google stock is $255.

Google has emerged as the bigtech leader in recent weeks, beating Microsoft by 40 percentage points since July 1 of this year. The search giant's stock rally followed strong growth in Google Cloud, strong adoption of chatbot Gemini and a favorable U.S. court ruling that allowed Google not to sell its Chrome browser, MarketWatch recalls.

The vast majority of Wall Street analysts are optimistic about Microsoft shares. According to FactSet, 59 out of 61 experts recommend the tech giant's shares to buy (Buy and Overweight ratings), while the remaining two are neutral (Hold rating). The consensus Buy rating is backed by an average target price of $624.36 per share, which implies a potential upside of more than 21% from current levels.

This article was AI-translated and verified by a human editor