Is Microsoft stock a buy in July? This piece covers the fundamental, technical and institutional investor ownership metrics that will help investors make an educated decision about the second-largest company on the Nasdaq by market cap.
Microsoft stock remains one of the "Magnificent Seven" tech giants, with 7.43 billion shares outstanding and a stock market value of nearly $3.7 trillion.
Microsoft Stock: The Ratings
First off, should you even pay attention to Microsoft stock? Absolutely. Its 95 Composite Rating from IBD means that the Redmond, Wash., juggernaut in business software, cloud computing and video gaming ranks higher than 95% of IBD's total database in terms of fundamental, technical and fund ownership data.
In general, investors interested in finding the biggest growth stock market winners will want to focus on stocks with a 95 Composite score or higher.
IBD Stock Checkup shows how, despite decades of growth, Microsoft continues to shine in its fundamentals. The SMR Rating, which evaluates sales, profit margins and return on equity, is a top-notch A on a scale of A to E. In fiscal 2024, the member of IBD's desktop software industry group achieved a 37% return on equity while maintaining a very reasonable debt level. Long-term debt as a ratio of average shareholders' equity stood at 16% as of June last year, according to a Microsoft weekly chart on MarketSurge.
Also, an Earnings Per Share Rating of 92 highlights bottom-line growth, from earnings per share of $4.75 in fiscal 2019 to $11.80 in FY 2024, a solid 148% gain over that five-year span.
Wall Street expects earnings, the No. 1 driver of long-term price appreciation, to rise steadily. Analysts see profit going up 14% to $13.39 a share in the fiscal year ending in June, and up 13% to $15.15 in FY 2026.
This means the forward price-to-earnings ratio for Microsoft stock is now a hefty 32.7 times expected FY 2025 profits.
Magnificent Seven Stocks: This One Gets A New Crown
Fund Ownership
Without question, Microsoft stock is one of the most widely held companies by the fund manager crowd.
MarketSurge data shows a gradual decline in the number of mutual funds owning shares — from a recent peak of 10,805 in the second quarter of 2024 to 10,450 in the second quarter of this year. However, a number of funds with excellent long-term results remain bullish on the stock.
Top funds that hold massive stakes include Janus Henderson Forty (JCAPX). The fund raised its holdings in Microsoft stock to 5.59 million shares during the January-March quarter, up from 5 million at the end of 2024. JPMorgan Large Cap Growth (OLGAX) has reduced its position to 15.56 million shares as of the end of June, down from 22.21 million shares in the third quarter of 2024.
Overall, MarketSurge notes that 42% of Microsoft stock is owned by funds vs. 2% held by banks and 1% by company management.
Microsoft Stock Today: Technical Moves
The complexion of Microsoft's chart has changed dramatically in recent months. A daily chart shows this clearly.
The stock got punched hard by institutions on Jan. 30 after the company reported results for the fiscal second quarter that ended in December. Earnings rose 10% to $3.23 a share on a 12% increase in sales to $69.6 billion. That marked a deceleration in top-line growth. After that session, in which Microsoft dropped more than 6% in what was then the heaviest turnover of the year, the stock sank all the way to 344.79 by April 7.
At that low, Microsoft stock tumbled 26% from its 52-week high of 468.35. Actually, that's not bad at all.
A 20%-33% decline is, in fact, normal for a high-quality stock to correct in price, set up a base and generate a new breakout opportunity. That's exactly what Mr. Softee did.
The Bullish Move By Microsoft Stock
On May 1, Microsoft stock roared 7.6% higher in accelerating volume after the company posted a re-acceleration in quarterly growth. A day earlier, Microsoft reported that earnings per share jumped 18% to $3.46, the biggest year-over-year increase in four quarters. Plus, revenue accelerated, rising 13% to $70.1 billion as the company counts on huge investments in AI to bolster future growth.
Wall Street sees revenue climbing 14%, 13% and 13% vs. year-ago levels in the next three quarters.
On May 14, Microsoft stock cleared a 448.38 early buy point, triggering a new entry. Since then, the stock has now advanced 11.5% and hit an all-time high of 500.76.
So, Microsoft stock is extended and no longer a buy. In this case, the 5% buy zone from 448.38 ran up to 470.80. Even the best growth stocks can suddenly pull back, saddling investors with a quick loss in an otherwise normal test of key buy points and technical price levels, including the 10-week moving average.
Final Points
However, this column will note follow-on entry points that are based on the price-and-volume analysis seen on Microsoft's daily, weekly and monthly charts.
As always, use sound sell rules to maximize your growth investing potential. Cut all losses short at no more than 7%-8%. Take profits on the way up, preferably at 20%-25% or a bit higher.
And finally, always check IBD's current outlook for evidence that the stock market is in a healthy uptrend.
Please follow Chung on X/Twitter: @saitochung and @IBD_DChung
