Add Microsoft stock to the tech leaders playlist alongside Nvidia stock, says growth investor Joe Fahmy.
"It's amazing how they've reinvented themselves," Joe Fahmy, portfolio manager at Zor Capital, told Investor's Business Daily's "Investing with IBD" podcast. Fahmy credits Microsoft with pulling itself out of a decadeslong lack of innovation. "Before, it was their operating system and Windows, and then, this 15-year nothing." He said the company began to turn things around first with recognizing cloud computing, then recognizing the potential of artificial intelligence.
Audio Version Of Podcast Episode
Earlier this year, the tech giant committed to integrating the popular AI chatbot ChatGPT into its various products. The company recently released Microsoft 365 Copilot, its first major push to integrate chatbots into its flagship products.
The stock reflects those gains. Shares of Microsoft are forming the right side of a cup-with-handle chart pattern, boosted by last week's earnings. "For a megacap name, that's pretty impressive to grow your earnings and sales in that sort of 10% to 25% range," says Fahmy. "It's still one of the true ways to play AI as far as software goes."
Microsoft ranks No. 1 in the Computer Software-Desktop group, according to IBD Research, and holds a stellar IBD Composite Rating of 99.
Waiting For More Market Breadth
But aside from a few choice stocks, Fahmy says the market's narrow leadership is worrying.
"I want to see breadth in the market," Fahmy said. "A sign of a healthy market is if you have a whole bunch of fundamentally strong growth stocks. Risk-on is people putting money into growth, not defensive utilities or staples." And the broader the investments, the better, says Fahmy.
He says to look for more sectors to participate on the upside.
While traders are seeing encouraging index strength in recent days, patience is still warranted. "Let's not forget, if this turns into a new uptrend, a healthier market, it'll take a bit of time to develop," Fahmy said. "And there'll be plenty of time to make money."
Comparing Microsoft Stock To Nvidia Stock
Fahmy echoes the idea of patience with Nvidia stock, itself a similar story to Microsoft stock in terms of artificial intelligence leadership.
Nvidia's sideways action over the last few months isn't turning Fahmy away from the chipmaker. "I've had so many people say, 'What's wrong with Nvidia?' And I say again, stop being so impatient," said Fahmy. He says the recent consolidation in Nvidia shares is normal, and that this is a typical consolidation.
The graphics processing unit specialist is seeing its shares fight to break above the range it's been hovering around since June, despite an enviable Relative Strength Rating of 99. Nvidia stock ranks No. 1 in the semiconductors group, according to IBD Research, and has a best-possible 99 Composite Rating.
"I still think as far as one of the greatest growth stories out there, there's still some upside with the stock," said Fahmy.
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