Microsoft (MSFT) Stock Analysis: Is It Still a Top Tech Pick?
This analysis examines where Microsoft Corporation (NASDAQ:MSFT) stands in the current market and in relation to other technology stocks identified by Goldman Sachs as potential buys.
The Tech Sector: A Mixed Bag
The technology sector experienced a strong performance throughout 2024, primarily fueled by the chip industry’s contributions to artificial intelligence (AI) infrastructure. Despite a mid-year slowdown due to concerns about high valuations and the pace of AI development, the tech sector remained a top performer. Goldman Sachs research from September 2024 indicated that U.S. technology stocks had not yet entered a financial bubble, despite rapid growth driven by AI enthusiasm. This growth was supported by strong financial fundamentals, with the global tech sector’s earnings per share increasing approximately 400% since the Great Financial Crisis, significantly outpacing the broader market.
However, 2025 started with challenges for tech stocks. As of March 5, the Information Technology and Communication Services sectors declined by 4.42%. This decline weighed down the broader index, and market volatility particularly impacted the “Magnificent Seven” tech giants, which collectively lost roughly $2.7 trillion in market value over a 50-day period. Economic uncertainties and Federal Reserve policy expectations led to further declines in major U.S. indices, increasing concerns about tech sector stability. Despite these short-term headwinds, the long-term outlook remains positive. Deloitte’s 2025 Technology Industry Outlook projects a 9.3% increase in global IT spending, with the data center and software segments expected to see double-digit growth. AI spending is projected to expand at a compound annual growth rate of 29% through 2028, indicating strong long-term demand. Furthermore, a 2024 Morgan Stanley analysis suggests that hedge funds have been increasing long positions in technology, media, and telecom (TMT) stocks, particularly in the semiconductor and software sectors.
AI’s Impact and the Software Shift
Initially, AI-driven investments were concentrated in data center infrastructure. However, Goldman Sachs analysts predict a shift towards software companies as AI monetization evolves. The focus is expected to transition from AI model training to inferencing, where applications generate revenue, thus leading to further expansion in the software sector. Despite the emergence of AI competitors, such as DeepSeek, major cloud computing and tech firms are increasing capital expenditures related to AI in pursuit of artificial general intelligence (AGI).
Market Volatility and Investor Strategies
Investors should be prepared for continued market volatility. Reuters reported that by February 21, hedge funds exited U.S. tech and media stocks at the fastest pace in six months, indicating shifts in institutional strategies. Warren Buffett’s Berkshire Hathaway portfolio adjustments also reflect a slight underweighting of technology stocks.
As the technology sector manages both growth opportunities and market turbulence, investors must consider the potential of AI-driven innovation alongside macroeconomic risks. Goldman Sachs has identified key tech stocks poised for growth, offering strategic opportunities in this evolving landscape.
Methodology
This analysis is informed by the methodology used to develop a list of Goldman Sachs Tech Stocks: 10 Stocks to Buy, which ranked top current holdings of the Goldman Sachs US Technology Opportunities Equity Portfolio based on the highest number of hedge fund ownerships. This ranking was derived using Insider Monkey’s exclusive proprietary Q4 2024 database of hedge funds.
Microsoft Corporation (NASDAQ:MSFT)
Microsoft logo
Microsoft Corporation (NASDAQ:MSFT) is a global technology leader known for its range of software products, hardware devices, and cloud services. These offerings include the Windows operating system, Microsoft Office suite, Azure cloud computing services, Surface hardware products, and the Xbox gaming platform. Operating across various sectors, Microsoft serves both consumer and enterprise markets, maintaining a dominant position in the software industry.
In the second quarter of fiscal year 2025, Microsoft Corporation (NASDAQ:MSFT) reported revenue of $69.6 billion, a 12% year-over-year increase. The Intelligent Cloud segment, driven by Azure, significantly contributed to this growth. However, CFO Amy Hood noted challenges in non-AI Azure sales, attributing them to execution issues in the partner sales motion.
Analyst Ratings
Analyst perspectives on Microsoft’s stock have been favorable, with 95% of 57 analyst ratings suggesting a Strong Buy. D.A. Davidson analyst Gil Luria upgraded the stock to a ‘Buy’ rating, setting a price target of $450, over 17% higher than its current level. Luria highlighted Microsoft Corporation (NASDAQ:MSFT)’s limited exposure to consumer spending downturns and its disciplined capital expenditure approach, positioning it as a “key shelter in the storm” during economic uncertainties.
As of March 20, 2025, Microsoft’s stock traded at $385.14, reflecting a slight decrease of 0.69% from the previous close. Overall, MSFT ranked 2nd in a list of Goldman Sachs tech stocks. While acknowledging MSFT’s potential, the analysis suggests that some AI stocks may offer greater promise for quicker and higher returns. “If you are looking for an AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.”
