After a bad week that saw Microsoft (NASDAQ: MSFT) and other software stocks are taking a beating from investors, provided a glimmer of hope on Monday. The segment as a whole recovered somewhat, with Microsoft posting a gain of more than 3% on the day, handily beating earnings S&P500 index increase of 0.5%.
Microsoft benefited from several positive developments as the trading week started. One of these was a new analysis of software stocks by an influential investment bank Morgan Stanleywhich saw nine defeated titles identified as attractive buys due to share price weakness. Microsoft was prominent in that grouping.
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According to reports, the bank’s analyst Keith Weiss wrote that bearish investors underestimate the ability of experienced developers to benefit from incorporating artificial intelligence (AI) into their offerings. According to him, fears that these companies would struggle in the great AI race were exaggerated. https://www.fool.com/investing/stock market/market-sectors/information-technology/ai-stocks/
Separately, CNBC reported that OpenAI, the developer of the high-profile ChatGPT AI model, had returned to monthly growth of more than 10% in terms of both the number of users and total usage. Microsoft is investing heavily in OpenAI, with a 27% stake in the company that it recently valued at $135 billion.
I also believe that Microsoft’s (and other software giants, while we’re at it) sell-off was overdone. It’s not hard to spread fear across the market, especially in the often volatile, high-stakes world of Big Tech.
Yes, Microsoft is fully committed to AI, and its significant investments in the technology may not always yield satisfactory returns. However, there is no question that AI is the future of competition, and the price to remain competitive is high. As always, Microsoft will find a way to make this work in its favor.
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