The timing of two positive Microsoft developments ahead of Wednesday’s Federal Reserve interest rate cut bolsters the case to buy shares of the software and cloud giant on any sizeable dips. Like the overall market, Microsoft has been running higher of late as odds increasingly favor a 50-basis-point Fed cut. With so much hope on Wall Street, if the Fed were to go with a smaller 25-basis-point move, the market could get hit and pressure Microsoft stock. Therein lies the opportunity. Microsoft stock on Tuesday added to recent gains — advancing nearly 1% to around $435 per share — following an update on the company’s Copilot artificial intelligence assistant efforts and an announcement of a 10% dividend hike and $60 billion stock buyback authorization. Fundamental reasons Both the Copilot news and capital return plans are fundamental reasons for increased confidence in the stock, which has bounced roughly 12% since its recent lows during the Aug. 5 market plunge . So, we would view any big declines after the Fed on Wednesday as blips before going higher. The Club has a $500 per share price target on Microsoft stock. We have our buy-equivalent 1 rating on the stock. But since we’re close to a major news event, we usually advise members to wait and see. MSFT YTD mountain Microsoft YTD We are certainly happy with the dividend increase and buyback authorization even as the updates were largely in line with what has historically been seen from Microsoft. While somewhat immaterial in comparison to the company’s stock market value of more than $3.2 trillion, they signal Microsoft’s continued commitment to shareholder returns despite the elevated spending levels required to build out AI infrastructure. They may also be taken as a sign of confidence that we will indeed see the Azure cloud growth acceleration that management forecasted on the company’s most recent earnings conference call at the end of July. At the time, CFO Amy Hood said to “expect Azure growth to accelerate, as our capital investments create an increase in available AI capacity to serve more of the growing demand.” Increasing the Copilot value proposition is how Microsoft ensures that Azure growth forecast is realized and that earnings growth can continue in the years to come. In what’s only the beginning of ” Wave 2 ” of Copilot updates, Microsoft announced several enhancements that should help drive that acceleration, including a more powerful underlying model to increase Copilot capabilities. “We’ve dramatically improved performance. Copilot responses are more than two times faster on average, and response satisfaction has improved by nearly three times,” Microsoft said in a press release. These updates should serve to increase Microsoft’s value proposition, not only of its Copilots but of its rapidly expanding enterprise ecosystem more broadly, which we believe are underappreciated . That’s our fundamental case, which aligns with technical analysis of Microsoft’s one-year stock chart pattern. Technical reasons We recently looked at some key support levels in our Sept. 5 technical analysis piece . Since then, however, we’ve reclaimed both the 200-day and 50-day moving averages. So, those should now be viewed as potential support levels. As a result, for those convinced of the fundamental reason to own Microsoft, we would advise keeping an eye both of these key levels ($423 for the 50-day and $413 for the 200-day). We believe that if we get something of an overreaction on Wednesday evening, the $400 and $390 levels remain very much in play as key support areas. (Jim Cramer’s Charitable Trust is long MSFT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A laptop computer with Microsoft Copilot+ installed is on display at the Best Buy store on June 18, 2024 in Miami, Florida. Best Buy began selling Microsoft’s new line of AI-centric Copilot+ PCs to customers.
Joe Raedle | Getty Images News | Getty Images
The timing of two positive Microsoft developments ahead of Wednesday’s Federal Reserve interest rate cut bolsters the case to buy shares of the software and cloud giant on any sizeable dips.
