Microsoft Corp. is one of the most-loved stocks on Wall Street, but even the wildly positive views surrounding the software giant haven’t been able to keep up with a rally that has already topped 50% this year.
On Tuesday alone, Microsoft jumped as much as 6% after providing details on pricing for some artificial-intelligence services. The advance drove the stock to $364.44 — 3% above the average analyst price target of $353.60. That’s the most Microsoft has been above it since 2013, according to data compiled by Bloomberg.
While 87% of the analysts tracked by Bloomberg continue to recommend buying the stock, the premium is the latest example of how the massive rally in big tech has taken prices to elevated levels.
In addition to Microsoft, Apple Inc., Meta Platforms Inc., and Netflix Inc. are all trading above their average targets. Tesla Inc. is nearly 20% above forecasts, the weakest expected return among all Nasdaq 100 Index members.
The tech-heavy gauge has a return potential of 2.2% overall by this measure, according to data compiled by Bloomberg. It has soared 45% this year.
Much of the rally has been fueled by investor excitement over AI, a technology that many of the megacaps are exposed to. The pricing that Microsoft detailed on Tuesday is seen as higher than expected, and analysts said it could support the company’s growth prospects going forward.
Whether AI has materialized as a concrete driver of earnings and revenue will be a key focus for this earnings season, especially as major stocks are trading at record levels and above their long-term average multiples.
The Nasdaq 100 is trading at 27 times estimated earnings, compared with its 10-year average of 20.8. Apple and Microsoft, the largest components of the index, are even pricier and are also above their long-term averages.
Microsoft will report its results next week alongside fellow megacaps Alphabet Inc. and Meta Platforms.
This article was provided by Bloomberg News.