‘Focus on the Trajectory,’ Says Top Investor About Microsoft Stock

The hands are wringing, as the worries over Microsoft (NASDAQ:MSFT) have been the prevailing narrative over the past few months. The company’s massive capex feeds into a concerning narrative of an AI overspend that drags down margins and never translates into a healthy return on investment.

Still, it’s not like it’s all dark and gloomy for the technology giant. The company’s last earnings report had plenty of positives, including revenue of $81.3 billion (up 15% in constant currency) and operating income of $38.3 billion (up 19% in constant currency).

Moreover, Microsoft Cloud revenue surpassed the $50 billion mark for the quarter, “reflecting the strong demand for our portfolio of services,” in the words of CFO Amy Hood.

However, despite the growing revenues and bullish words, MSFT has been skidding. The company’s $37.5 billion in quarterly capex was up 66% year-over-year, catching some investors by surprise.

The company’s share price has fallen some 22% since its latest earnings report at the end of January.

Though its valuation is dipping, top investor Adam Spatacco is instead choosing to focus on Microsoft’s “compelling growth trajectory.”

The 5-star investor understands the worries over the growing capex as well as the company’s heavy involvement with the cash-burning OpenAI. He just doesn’t share them.

“While these concerns are legitimate, they are also overblown,” argues Spatacco.

For one thing, the investor points out that last quarter Azure enjoyed 39% year-over-year growth, with Microsoft’s AI offerings helping to drive this expansion. Moreover, he also argues that Azure’s future revenues don’t rely on just one partner. Indeed, Spatacco posits that the company is successfully monetizing this platform at scale, with each passing quarter providing further demonstration that additional enterprise customers are coming on board.

In that sense, the billions that Microsoft is expending are not a liability, but a central pillar of a growing business opportunity that the company seems primed to capitalize on.

“While its capex spend looks significant in isolation, I think it’s both rational and required to maintain the company’s revenue trajectory,” concludes Spatacco, who is among the top 2% of stock pros covered by TipRanks. (To watch Adam Spatacco’s track record, click here)

Truth be told, Wall Street doesn’t seem all that concerned with MSFT’s prospects. With 34 Buys and 3 Holds, MSFT enjoys a Strong Buy consensus rating. Its 12-month average price target of $581.61 would lead to gains north of 55% in the year ahead. (See MSFT stock forecast)

Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.