Microsoft Corporation (NASDAQ: MSFT) stock rallied over 10% after the Trump administration announced a 90-day pause on its retaliatory tariffs. Prior to the announcement, MSFT stock had hit a 52-week low and was trading at a level not seen since October 2023.
On the one hand, investors who bought the dip were just reacting to the notion that Microsoft was looking too cheap to ignore. On the other hand, some investors are concerned there could be more volatility ahead for technology stocks.
That issue is particularly acute for Microsoft which has been increasing its capital expenditures to build out an artificial intelligence (AI) infrastructure. But that is coming with a hit to the company’s free cash flow (FCF), which is down about 5% on a trailing twelve-month (TTM) basis from its fiscal year 2024 and is projected to drop by another $2 billion by the time the company’s fiscal year ends in July.
And then there’s the question of valuation. Microsoft continues to trade at around 29x forward earnings. The issue of valuation is a concern if you’re looking at Microsoft as a growth or momentum stock to buy for quick gains. Microsoft is one of those blue-chip stocks that play the role of a growth and value stock for investors with a long-term outlook.
And that story is still in place today.
Plenty of Growth, But Don’t Forget About Value
Dividend investors would blanch at the idea that Microsoft is a great dividend stock. The MSFT dividend yield is around 0.85%, and that’s even with the stock price pulling back over the last month. That’s hardly a high-yield dividend. However, it is nearly double the yield of Apple Inc (NASDAQ: AAPL)
And Microsoft will almost assuredly increase its dividend sometime after it reports fourth-quarter earnings for fiscal year 2025 in July. That will mark 24 consecutive years of dividend increases, putting it on the doorstep of being a dividend aristocrat.
Besides, this is one of those times when yield doesn’t tell the entire story. Microsoft's annual payout per share is $3.32. It’s a strong payout compared to Alphabet Inc. (NASDAQ: GOOGL), which just launched a dividend in 2024 and has an annual payout of 80 cents per share.
Plus, the dividend’s been increasing at an annualized three-year rate of 10.22% with a dividend payout ratio of just 26%. That’s fine for a company like Microsoft that is still growing yet continues to reward its shareholders.
Microsoft also has a solid history of buying back its own stock. For example, in September 2024, the board of directors approved a $60 billion share buyback plan. In fact, in its last quarter, Microsoft returned $9.7 billion to shareholders in buybacks and dividends.
Is Microsoft Tariff Proof?
Microsoft’s strongest revenue growth came from its Azure and other cloud computing services, so tariffs won’t impact that business. However, the company could be impacted by tariffs as it continues to build out its AI infrastructure. Microsoft has reiterated plans to spend up to $80 billion in 2025, but that number could be higher due to higher material costs.
The company may also face tariff pressures in its personal computing and X-box business. That is to say nothing of the fact that consumers and businesses may slow down or pause these purchases until economic conditions improve.
The state of the economy brings up another issue. In addition to tariffs, investors need to be at least a little concerned about the potential slump in ad revenue if the economy tips into recession. Analysts are mixed over whether a recession is likely, but until there’s more clarity, it’s not a risk that can be overlooked. It remains to be seen whether Microsoft will offer forward guidance when it reports in April.
Analysts are Still Bullish on MSFT Stock
[content-module:Forecast|NASDAQ: MSFT]Analysts heavily cover Microsoft. In the past few weeks, some of those analysts have lowered their price targets for MSFT stock. But overall, the sentiment remains bullish with a Moderate Buy rating and a price target of $504.90, which would be a 28% gain from the current price.
Microsoft reports earnings on April 30. The period around earnings tends to be volatile for stocks. But if you’re an investor with a long-term outlook, you may find MSFT stock to be a good value after it reports earnings.
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