‘Reversing Course’: Top Investor Has a New Take on Microsoft Stock

**Microsoft (NASDAQ:MSFT) **is firmly entrenched among the U.S. technology leaders. The company’s latest earnings report further cemented its stature as an industry stalwart.

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Revenues of $81.3 billion were up 17% year-over-year (15% on a constant currency basis), and Microsoft Cloud generated the lion’s share of these sales. Moreover, Microsoft Cloud’s backlog surged to new heights, and its $625 billion in remaining performance obligations signifies plenty of potential sales coming down the pike.

However, MSFT’s share price has been sinking since the late January earnings report. The likely culprit: the $37.5 billion in capex that the company spent last quarter.

The sticker shock was amplified by the larger trends in the market, as investors are becoming increasingly worried about shrinking margins, the return on all this massive investment, and the growing concerns of an AI bubble.

For many, a shrinking MSFT offers a compelling opportunity to buy this U.S. corporate titan at bargain prices. That was the belief of top investor Daniel Sparks, though now he’s changing his tune.

“The software giant’s competitive advantages may be more threatened than I previously thought,” explains the 5-star investor, who is among the top 1% of stock pros covered by TipRanks.

Though the company’s backlog is mouthwatering, Sparks also notes that a large chunk of this is coming from OpenAI. Moreover, it will take some time for the potential sales to turn into real dollars, he adds.

However, it’s not just the AI concerns that are weighing on Sparks. His bigger concern: the myriad ways that Microsoft could lose market share in the years ahead.

The investor points to “shifting moats and fierce competition,” especially in the cloud space. While Amazon is the clear leader in cloud computing, Google Cloud is also growing at a fast clip.

There’s another, somewhat “speculative” worry that’s cropping up, as well.

Sparks points out that much of Microsoft’s business relies upon “entrenched enterprise usage.” It’s possible that a new generation, which came of age with Google products, might prefer to shift toward Alphabet when they start filling C-suite roles, he suggests.

If Microsoft does lose its competitive advantage, its pricing power would also take a hit. Though its valuation has been falling, its mid-20s price-to-earnings ratio still requires the company to deliver a “lucrative profit margin.”

“My new take on the stock? Don’t buy the dip,” concludes Sparks. (To watch Daniel Sparks’ track record, click here)

Wall Street isn’t going anywhere, however. With 33 Buys and 3 Holds, MSFT carries a Strong Buy consensus rating. Its 12-month average price target of $594.02 has an upside approaching 50%. (See MSFT stock forecast)

Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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