Investing

This Magnificent 7 Stock Can Soar 40% in 2025 According to a Wall Street Expert

Omor Ibne Ehsan

Published: January 22, 2025 4:07 pm

Last Updated: January 22, 2025 4:08 pm

Microsoft (NASDAQ: MSFT) is a mega-cap stock that I think doesn’t get as much credit as it should. This company has basically kickstarted the AI wave with its early investments into OpenAI. Not only that,  most people can’t live without Microsoft. Even if you aren’t using a Windows computer right now, there is a good chance that Microsoft products have at least been used in some way to serve or make the content you read. 

24/7 Wall St. Key Points:

• Microsoft received a $600 price target from Truist Financial.
• This means the analyst from the firm believes Microsoft can surge around 40% this year.
• However, for that to materialize, a lot needs to go well for the company this year. If you are looking into stocks with such returns, don’t forget to check our free report  “The Next NVIDIA.”

One analyst (Joel Fishbein) from Truist Financial believes it can go up 40% this year. He has a $600 price target on the stock, which I think isn’t that unrealistic considering Microsoft is still growing at double digits and has very high growth segments. It has the second-biggest cloud business behind AWS and you could even argue it is the most important public AI company due to the sway it has over OpenAI.

How High Can MSFT Go?

Microsoft is a pretty special stock. It has one of the biggest moats and it will continue to go up as long as the white-collar sector continues to expand. So, there’s really no ceiling to high Microsoft can go in the long run. However, it can double by the end of this decade. It’s great news for Microsoft that the expansion has been above and beyond anyone’s expectations in the past few years.

Microsoft grew its revenue by 16% year-over-year to $65.6 billion. $30.6 billion of that is operating income. Moreover, its Intelligent Cloud segment grew by 20.4% and the AI business is expected to surpass $10 billion in annual revenue run rate by Q2 2025. This will make it the fastest-growing business segment in Microsoft’s history.

The Growth Catalysts for Microsoft

You’re currently paying 33 times forward earnings for Microsoft and 11 times sales. Analysts currently expect Microsoft to grow its sales and earnings in the lower double digits of around 10-15%. That said, when you look at Microsoft’s growth avenues — both long-term and near-term — it should become clear that Microsoft has plenty of opportunities to stump analysts.

The biggest avenue for growth that I see in the near term is definitely AI. The AI/Cloud slowdown hasn’t materialized and new AI tools like Microsoft’s 365 Copilot could boost revenue growth as well as give it more pricing power as organizations become more dependent on AI to make their operations more efficient. One recent analyst estimate suggests Microsoft 365 Copilot alone could generate up to $9.1 billion by fiscal year 2026. Plus, a new study projects that Microsoft 365 Copilot can drive up to a 353% ROI for SMBs.

In the longer term, I think quantum computing could be huge for Microsoft. The cloud market even right now is enormous, but quantum computing could make it worth astronomically more. Microsoft wants to ship the world’s most advanced quantum computer this year. It also called 2025 the year to be “Quantum-Ready.”

Microsoft’s massive AI infrastructure investment also deserves much attention. It plans to spend $80 billion on AI data centers in fiscal year 2025.

The Broader Consensus on Microsoft

Wall Street analysts have a $512 consensus price target on MSFT stock. This implies nearly 20%, but it is much lower than the highest one. That said, a 20% gain is still solid in one year, especially for a company the size of Microsoft.

The Bottom Line

Microsoft’s gains have slowed down in the past year, but if analysts are right, we could see another leg up. There is good reason to believe that we may see that happen as AI investments are starting to pay off and add to Microsoft’s top line. Plus, the cloud segment has shown no sign of slowing down and in fact could accelerate due to Microsoft integrating AI solutions to its products.

Of course, you’re paying a premium for this stock, but I think that’s more than warranted due to the moat Microsoft has and the growth catalysts going forward. Microsoft should expand nicely as long as the white-collar industry does.