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Microsoft (MSFT) released its most ambitious tech to date called Majorana 1. It is a quantum chip built on a new state of matter called a topoconductor, or a topological superconductor, which uses Majorana fermions. Microsoft says that this new state of matter allows it to create a small, fast qubit that it can digitally control. This should lead to Microsoft and other companies being able to fit a million qubits on a single chip that is small enough to fit in a palm.
Quantum computing stocks surged momentarily on the news, but those stocks have come down since then. Microsoft stock has also struggled. The stock is down 8.8% in the past month and 1.3% over the past year. Should you buy it despite the weakness? Let’s take a look at the fundamentals here first.
How Bullish Is Microsoft’s Earnings Beat?
In its most recent second-quarter earnings report for its fiscal 2025, Microsoft beat Wall Street earnings estimates and posted revenue growth of 12% year-over-year to $69.6 billion. Guidance came in slightly below consensus estimates and investors are uneasy about its cloud growth. Azure and other cloud services grew revenue by 31%, which came in at the lower end of Microsoft’s guidance range.
Microsoft doubled down on its AI investments with an annual AI revenue run rate exceeding $13 billion. It plans to spend $80 billion on data centers this year. At the same time, Microsoft is canceling leases for a “substantial amount” of its data center capacity. This could slow down growth in the current quarter and end up disappointing analysts.
The earnings report was less of a beat and looks more mixed when you look back at it in the context of recent news.
Is Microsoft Stock Overvalued or Undervalued?
Most mega-cap tech stocks trade at a premium, and investors are willing to pay more for companies that have a wider moat. It’s undeniable that Microsoft is a solid company and I’d argue that it deserves credit for kicking off the AI rally with its smart investments into OpenAI a few years back. Windows and Office 365 will also remain cash cows for Microsoft.
That said, many bears think too much AI has been priced into the stock. It trades at over 12 times sales and at almost 32 times forward earnings. If Microsoft starts to lose its AI edge, it could also lose its premium valuation. Analysts expect growth in the range of 10%-14% for both its top line and bottom line this year and next.
Analysts are still overwhelmingly bullish on Microsoft despite weaker retail sentiment. The mean price target of $510.35 implies 26% upside from here. The highest price target is at $600, whereas the lowest price target of $425 still implies no downside risk from the current price.
Microsoft has a consensus “Strong Buy” rating with 35 of 42 individual analysts rating it as a “Strong Buy.”
Should You Buy MSFT Stock After Majorana?
If you like the sum of Microsoft’s parts, it is certainly worth buying for the long run. However, should investors buy it just because of Majorana? That wouldn’t be a good idea. Yes, quantum computing is the logical next step technologically as chips get extremely small and AI demands exponentially more computing power, but Majorana 1 is still too early to have a meaningful impact on Microsoft’s fundamentals. Commercial viability could be over a decade away, and other companies could catch up in that time frame.
You’re being asked to pay a lot for the stock already at current multiples, but it is likely Wall Street will hold up the premium as Microsoft grows. So as long as the broader market remains healthy, I give MSFT stock a “Buy” rating for the long run.
