Microsoft Stock Forecast: The Rebrand To Microsoft 365 Can Boost The Stock Higher

motek 1This Microsoft stock forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

  • Microsoft’s stock has been resilient during the March Madness COVID-19 panic sell-off.  Many investors understood that as a software company, Microsoft has little headwind from COVID-19 factory shutdowns.
  • Disruption in the production of Surface products is not a handicap for Microsoft. Software sales remain strong during quarantines.
  • The decision to rebrand Office 365 to Microsoft 365 signals an all-in focus toward becoming a one-stop shop for everything.
  • The COVID-19 forced many people to stay at home. Work-from-home is now the new normal for many corporate and government employees.
  • The COVID-19 pandemic is great for Azure and Microsoft’s software subscription sales.

It is a pleasure to see that Microsoft’s (MSFT) stock is emerging as one of the least-battered tickers during this COVID-19 pandemic sell-off madness. As you can see from the chart below, MSFT’s one-month performance did not post a protracted -30% or -50% price drop. MSFT indeed dropped below $140 on the third week of March but it has since recovered to over $155.

Microsoft stock forecast
(Source: Seeking Alpha)

Microsoft is first and foremost a software company. The Surface computer business is just a drop in Microsoft massive revenue stream. Logic prevailed and most investors now believe that Microsoft has no detrimental headwind from the global COVID-19 pandemic. The return of optimism over MSFT should help the stock eventually bounce back near its 52-week high of $190.70.

Why MSFT Still Deserves A PT of $205

I’m still holding on to my $205 price target for MSFT. The COVID-19 pandemic has created a situation where there is intensified demand for cloud computing infrastructure services and collaboration software. Companies will probably rent out more Azure instances just to make sure its work-from-home employees remain at peak productivity. 

The tight integration of Azure, Dynamics 365, and Microsoft Teams/Skype for Business makes Microsoft a clear winner in work-from-home cloud collaboration. The affordable monthly plans and the varied applications of Dynamics 365 means companies can still operate at peak levels even if most of their employees are working from home.

Microsoft stock forecast
(Source: Microsoft)

The COVID-19 pandemic will likely improve Microsoft most recent quarterly revenue of $36.91 billion. Most of the boost will come from increased Azure and Office 365/Dynamics 365 subscription sales. Sure, the 6-week quarantine in China obviously delayed production of laptops and other PC products. However, this production hiccup did not really endanger the commercial sales of Windows 10 and desktop Office 2019. PC vendors will still eventually buy and pre-load Microsoft’s Windows 10 and Office 2019 on their products.

My fearless forecast is that consumer and commercial sales of Office 365/Office 2019 grew during February/March. It is safe to say that Microsoft can beat or replicate last quarter’s $11.826 billion (FY20 Q2) revenue from Productivity and Business Processes. Greater demand for Azure instances will also lead to for $12 billion FY20 Q3 revenue for Intelligent Cloud. Going forward, the unwelcome tailwind from COVID-19 pandemic for two segments (Productivity and Business Processes + Intelligent Cloud) should offset any weakness in Microsoft’s More Personal Computing segment.

Microsoft stock forecast
(Source: Microsoft)

Why The Rebranding To Microsoft 365 Is Important

Come April 21, Microsoft will change the marketing brand of Office 365 to Microsoft 365. This is a loud declaration that Microsoft wants to be must-own complete software solutions provider for home and office users. Microsoft 365 is more than just document creation/management. It will be an AI-assisted and device-agnostic cloud-based productivity service.

(Source: Microsoft)

Microsoft 365 is more than Word, Excel, or PowerPoint. It will also provide home and office users assistive Artificial Intelligence features that will accelerate their workflows. One example of this is the new AI writing assistant, Microsoft Editor. Paying customers (even those who only go for the $5/month plan) of Microsoft 365 can use the advanced grammar and style guidance AI of Microsoft Editor. Microsoft Editor is a big selling point that will attract students, professionals, and educators. We all improve our careers by becoming better writers.

Expect A Surge In Video Games Revenue

The billions of people now stuck at home are now playing video games as an anti-boredom cure. Microsoft is the no. 3 ranked leader in the video games industry. My takeaway is that increased sales of games and in-game purchases should offset lower Surface hardware and Windows 10/Server software sales. As per Newzoo’s estimate MSFT has quarterly revenue of more than $3.3 billion from video games-related products/services. I expect this to go as high as $3.6 billion during this COVID-19 affected first two quarters of 2020. An extra $300 million per quarter from gamers should be enough to offset lower Surface computer sales.

My fearless assessment is that people that are forced on paid leave will likely buy a new Xbox system to entertain themselves and their kids. Now is a great time for Microsoft to do a commercial launch of its Project xCloud subscription cloud gaming service. The people forced to stay at home will try anything to avoid getting bored and frustrated. The shock of being not allowed to go out of your home for 30 days or longer is obviously going to stressful for many.

Conclusion

Lives and livelihoods are being lost due to this tragic COVID-19 pandemic. However, we as investors should always find something positive out of unfortunate events. My view is that Microsoft is one of the companies that has medium-term tailwinds from any pandemic. The downside to Microsoft’s hardware business is negligible when you consider the boosts to software, Azure, and video games that undesirable pandemics bring.

We all know that Microsoft touts the “cash is king”. Microsoft has a superior balance sheet and strong free cash flow. Going long on Microsoft while it is notably down from its 52-week high is great bottom-fishing investing. I still expect this company’s stock to hit $205 within the next 12 months. Companies that can consistently grow their free cash flows are true long-term investing winners. As per the chart below says, MSFT has consistently increased its annual free cash flow for the past five years.

Microsoft stock forecast
(Source: MacroTrends)

My strong buy recommendation for Microsoft stock is also due to the buy signal from its bullish one-year market trend forecast score from I Know First. I trust my instinct. I have faith in the predictive AI of I Know First’s self-learning algorithm on stock trend patterns.

Microsoft stock forecast

Past Success With Microsoft Stock Forecast

I Know First has been bullish on MSFT’s shares in past stock market forecast. On April 9, 2019, the I Know First algorithm issued a bullish forecast for Microsoft stock price. This quantitative trading tool successfully forecasted the movement of MSFT. Until today, Microsoft stock price has risen by 28.27% in line with the I Know First algorithm’s forecast. See the chart below.

Microsoft stock forecast

This bullish Microsoft stock forecast was sent to the current I Know First subscribers on April 9, 2019.

Here at I Know First, one of the top fintech companies in the industry, our algorithm has modeled and predicted assets price movement worldwide for short-term and long-term time horizons, ranging from 3 days to a year. Since 2011, we have been providing daily market forecast, including currency predictionsgold forecast, market indices predictions, and, in particular, Apple stock forecast. Additionally, we provide the latest Apple stock news, updates and the latest launches. Today, we are producing daily forecasts for over 10,500 assets. Recently, the Corona stock market outbreak has caused significant impact onto the global economy, which is why I Know First launched a special package which includes Corona stock picks to identify the best investment opportunities in the market.

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Please note-for trading decisions use the most recent forecast.