Microsoft (NASDAQ:MSFT) shares have continued to climb at a moderately-high pace. Positive news regarding regulatory approval of the tech giant’s acquisition of Activision (NASDAQ:ATVI) has somewhat played a role in the MSFT stock rally.
However, the key driver was high excitement about Microsoft’s high exposure to the artificial intelligence mega-trend. As a first-mover among big tech in AI, analysts and investors continue to up their expectations for the company’s future revenue growth.
Yet while this has resulted in MSFT adding further to its gains this year, with the stock up nearly 40% over the past six months, if you haven’t bought it, you may be hesitant to enter a position today. If you currently own, you may get the itch to take profit.
So, are these smart moves to make today? Let’s find out.
Two Reasons MSFT Stock Keeps Climbing Higher
Back in April, it looked as if Microsoft’s AI-charged rally was slowing down, but thanks to two factors, ‘AI mania’ is still going strong, sending shares to even higher prices. First, the company’s quarterly earnings release on April 25.
This event helped to get MSFT stock back on an upward trajectory. As I discussed last month, strength with its cloud computing segment outweighed the impact of the tech slowdown on its legacy Personal Computing segment. That’s not all.
Microsoft’s updates to guidance also suggested that the company’s integration of the AI technology would have an even greater impact on the company’s future performance.
Throughout May, and into June, analyst expectations about what AI means for Microsoft’s future results have kept growing.
For example, one analyst, Evercore ISI’s Kirk Materne, believes that AI monetization may add $100 billion to the company’s annual revenue by 2027.
Despite increasingly bullish analyst forecasts, it makes sense why you may still be concerned about MSFT’s performance from here. That said, this may not mean that a sharp reversal for shares is just around the corner.
Buy or Sell? How About Neither?
The situation with MSFT stock is a lot like what is going on with Nvidia (NASDAQ:NVDA) stock at present. Obviously, both are big tech names, boosted higher thanks to the aforementioned mega-trend.
Yet while MSFT has not gone up as dramatically as NVDA (which is up nearly 175% year-to-date), it’s not as if MSFT will keep climbing, while NVDA is doomed to tumble. Probably both names are at risk of moving lower in the near-term.
As I recently argued, investors long Nvidia shares have started profit-taking. This has placed a modest amount of pressure on the stock. We could see profit-taking increase with Microsoft stock as well in the short-term. Driving a similar modest move lower for shares.
With this in mind, now may not be the most opportune time to initiate a MSFT position. A more favorable entry price may be just around the corner.
However, while the crowd may be realizing some of its gains, that doesn’t mean you need to join in. Although this stock could tread water, or even move lower from here, it’s not as if shares have reached a multi-year top.
The Best Move Now
While Microsoft stock has become pricey, with a forward price-to-earnings (or P/E) ratio of around 34.8, I wouldn’t assume that is a stretched valuation.
If analyst earnings forecasts for 2024 and 2025 play out, and Microsoft’s earnings surge thanks to AI integration/monetization, this may justify a steady climb to even higher prices.
Still, while now is too early to sell an existing position, it’s not just the prospect of profit-taking that may make now not the best time to buy. Concerns about interest rates and recession risk, which have calmed down since the spring, could re-emerge, resulting in renewed volatility amongst tech stocks.
In short, when it comes to the best move today with MSFT stock, sit tight if you don’t own it, hold on tight if you do own it.
MSFT stock earns a B rating in Portfolio Grader.
On the date of publication, Louis Navellier had long positions in MSFT and NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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