(Bloomberg) — Microsoft Corp., a stalwart of the tech industry, is having a tough time keeping up with the recent rebound in the biggest megacap stocks.
Shares of the blue-chip software company are down more than 6% in 2022. That’s in contrast to Apple Inc. which just posted its longest winning streak since 2003, Amazon.com Inc., which is higher on the year, and Alphabet Inc., down less than 2%.
Analysts say Microsoft’s business is doing fine, unlike those of big-tech laggards Netflix Inc. and Meta Platforms Inc. The main issue holding the stock back is valuation. Investors have been buying tech stocks, enticed by discounts after the selloff earlier in the year, but Microsoft still sells for 30 times estimated earnings, making it more expensive than most peers.
On Wednesday, Microsoft shares fell 0.3%, compared with a decline of 0.4% in the Nasdaq 100 Index.
“It carries a premium multiple, and that’s one of the things that has caused it to lag relative to the names it tends to be compared to,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, which has about $8 billion in assets and owns Microsoft shares.
The Nasdaq 100 Index is priced at 26 times profit, while Apple and Alphabet also are both well under 30 times earnings.
Microsoft’s recent acquisitions — a $19.6 billion deal for Nuance Communications Inc. and a $68.7 billion bid for Activision Blizzard Inc. — also might be crimping its shares as Microsoft dips into its cash reserves, while also facing regulatory scrutiny.
And other tech firms have also fed bulls with news to call home about: Amazon and Alphabet have proposed stock splits while Apple and Nvidia Corp. had product events that propped up their shares.
Microsoft gave a strong forecast for its cloud-computing business in January, and analysts are optimistic about the company’s prospects. Wall Street forecasts revenue growth of 18% for Microsoft this year and double-digit gains in the next three, according to data compiled by Bloomberg. That’s faster than Bloomberg Intelligence’s estimated growth for tech companies in the S&P 500, and for the software sector.
While investors aren’t flooding back in, analysts believe they will. Its stock has 48 buy ratings, four holds and no sell recommendations. They are projecting an 18% rally in its shares over the next 12 months, according to data compiled by Bloomberg.
“The outlook for Microsoft is outstanding, and overall we’re seeing very solid growth compared with what I would have told you was possible three years ago,” said Pat Burton, co-portfolio manager of the $13.9 billion MainStay Winslow Large Cap Growth Fund, which has Microsoft as its largest holding.
Tech Chart of the Day
The breakneck rally in tech stocks the past two weeks is about to run into its next key technical milestone. The Nasdaq 100 Index has surged more than 16% since falling to a 10-month low on March 14, breaking back above its 200-day moving average and recouping more than 50% of its drop from a record in November. Chart watchers will now be on the lookout for the tech-heavy gauge to push through resistance at the 61.8% retracement of its bear market selloff, about 0.6% above Tuesday’s close.
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(Updates to market open.)
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