10 Best Enterprise Software Stocks to Buy Now

04. Microsoft Corporation (NASDAQ:MSFT)

Average Analyst Share Price Target Upside: 17.50%

Average Analyst Share Price Target: $494.72

Microsoft Corporation (NASDAQ:MSFT) has an average analyst price target of $494.72, reflecting a potential upside of 17.50%. Microsoft Corporation (NASDAQ:MSFT) expanding dividend makes it a compelling buy. Over the past decade, the dividend has nearly tripled, with annual hikes averaging about 10%. Despite spending over $21 billion on dividends annually, Microsoft Corporation (NASDAQ:MSFT) low payout ratio of 25% keeps this cost manageable. Although the company has cut back on stock buybacks to increase spending on growth and AI, it continues to repurchase shares enough to prevent dilution. With a P/E ratio of 33.8, analysts consider Microsoft Corporation (NASDAQ:MSFT) as reasonably priced compared to its large-cap peers. In its latest earnings announcement on July 30, Microsoft Corporation (NASDAQ:MSFT) reported a normalized EPS of $2.95, exceeding expectations by $0.01. The company’s revenue reached $64.73 billion, beating estimates by $287.80 million.

Despite concerns over margin impacts from generative AI investments, the company’s growth in AI-driven areas like Azure and GitHub remains strong. Microsoft Corporation (NASDAQ:MSFT) capex has surged 78%, indicating robust future growth potential. The company’s focus on AI and cloud infrastructure positions it well for long-term gains, making it a compelling investment despite short-term volatility.

Polen Focus Growth Strategy stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:

“The top absolute contributors were Alphabet, Microsoft Corporation (NASDAQ:MSFT), and Amazon. Microsoft was another top absolute contributor in the quarter, speaking to a growing appreciation for all the ways the company has an opportunity to monetize GenAI, be it in its Office suite or Azure cloud business. In the latter case, it contributed 7% to Azure’s revenue growth in the most recent quarter. We believe Microsoft remains a highly advantaged business with many secular tailwinds driving durable growth for the foreseeable future, even at its immense scale.”