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Wedbush analyst Dan Ives is a known technology bull. Over the years, he has made compelling cases to invest in recent outperformers such as Nvidia (NVDA) and Palantir (PLTR). Even now, when the market downturn has been primarily felt by the “Magnificient Seven” cohort, Ives has reiterated his bullishness on one of its most prominent members.
Why Is Ives So Bullish on Microsoft Stock?
Ives thinks that at current levels Microsoft (MSFT) is a “table-pounding” buy which in Wall Street parlance refers to a stock or investment opportunity that analysts or portfolio managers are extremely bullish about. Delving further into his optimism around the Redmond, Washington-based company, Ives said, “Microsoft’s sell-off is a stark contrast to what we are seeing take place in the field despite market jitters.”
Ives further said that Microsoft remains “one of the best ways to play the AI revolution theme over the coming years.”
However, shares of the ChatGPT-backer have disappointed of late with the stock down 6.4% in the year to date and 6.7% over the past year. So, can one of the most valuable companies in terms of market cap ($2.9 trillion) bounce back and vindicate Ives’ confidence? Let’s find out.
Robust Fundamentals
A glowing testament to the demand for Microsoft’s software and services lies in its revenue and earnings growth rates. Over the past 10 years, the company has clocked revenue and earnings compound annual growth rates (CAGRs) of 10.85% and 16.19%, respectively.
In Q2 of its fiscal 2025, Microsoft reported revenue of $69.6 billion, which marked yearly growth of 12%. Earnings witnessed growth of 10% from the previous year to come in at $3.23 per share. Key segments such as Cloud, Microsoft 365 and LinkedIn contributed to the overall growth.
Further, even at such elevated levels of revenue, Microsoft managed to maintain its gross margin levels of about 69%.
Net cash from operations also increased to $22.3 billion from $18.9 billion in the year-ago period as the company exited the quarter with a cash balance of $71.6 billion.
Notably, as a result of its huge cash pile, Microsoft returned $9.7 billion to shareholders in the form of dividends and share repurchases in its Q2.
Strategic Tailwinds
Microsoft’s position as a hyperscaler with a strong emphasis on AI and cloud computing places it in an advantageous position for sustained growth. The company’s consistent expansion in these domains underscores its ability to capture market share and drive long-term value.
Notably, AI remains a critical driver of revenue, with Microsoft currently generating an estimated $13 billion in annualized revenue from AI-related services. Commercial bookings have surged, reflecting strong enterprise interest, while the company’s massive remaining performance obligations (RPO) of approximately $300 billion indicate substantial long-term demand for its AI and cloud offerings. Within the cloud segment, Microsoft holds a dominant position, contributing nearly 37% of total company revenue. As the second-largest player in the global cloud market, commanding a 20% share, Microsoft is well-positioned to benefit from the ongoing migration of IT spending from on-premise infrastructure to cloud solutions, a transition that is still in its early stages.
Another key factor in this trajectory is the rapid adoption of Copilot, which has seamlessly been integrated across Microsoft’s suite of applications, redefining workflows for businesses. The latest earnings report highlighted that over 160,000 organizations have leveraged Copilot Studio, collectively developing more than 400,000 custom agents in just three months — more than double the previous quarter’s figures — demonstrating the accelerating demand for AI-driven productivity solutions.
Moreover, Microsoft’s reputation as an innovation leader is further cemented by its strides in quantum computing. The company’s Majorana 1 chip, capable of handling a million qubits of information, represents a significant technological breakthrough, especially when compared to International Business Machine’s (IBM) leading quantum chip, which currently maxes out at just 1,121 qubits. This leap in quantum capability reinforces Microsoft’s ability to push the boundaries of computing, securing its place at the forefront of next-generation technologies.
Beyond these technological advancements, Microsoft benefits from formidable competitive advantages that create high switching costs for customers. Its widely used Windows operating system, Office 365 suite, and cloud services ensure a deeply embedded user base, making it difficult for enterprises to transition away.
Analyst Opinions on MSFT Stock
Ives’ sentiments around Microsoft seem to be shared by most of his Wall Street peers as analysts have attributed an overall rating of “Strong Buy” for the stock with a mean target price of $506.83, which denotes upside potential of about 29% from current levels. Out of 44 analysts covering the stock, 38 have a “Strong Buy” rating, four have a “Moderate Buy” rating, and two have a “Hold” rating.
