Tech giant Microsoft (NASDAQ:MSFT) is reporting its quarterly results on Oct. 30, and it could be a big test for the company to see how well its investments into artificial intelligence (AI) are going, and if they are paying off. There have been criticisms of its Copilot assistant and that it may not be useful for companies and not cost effective.
Microsoft stock has been a fairly big AI play and that’s a big reason it remains one of the top companies in the world, with a market cap of around $3.2 trillion. This year, Microsoft’s stock has rallied 14% and over a five-year period it has risen by more than 200%.
Expectations, however, will be high for the company as Microsoft’s stock trades at a fairly hefty 36 times its trailing earnings. If the company fails to impress investors on revenue, earnings, or even its outlook, it could be due for a correction.
When the company last reported earnings in July, Microsoft reported a 15% increase in revenue but just a 10% increase in profits. The stock’s returns, however, have largely been flat over the past three months.
Overall, there isn’t likely to be a big rally following the company’s next earnings report and I would expect it’s more probable that the stock comes down in the days and weeks afterwards than it is to rise higher given its high valuation.
If you’re looking at Microsoft as a possible long-term buy, you may be better off waiting; odds are the stock may decline in the near future as it can be difficult for it to sustain such a high earnings multiple for much longer.
