'Magnificent Seven' playbook: Microsoft's outlook amid AI investments

Microsoft (MSFT) is the "Magnificent Seven" tech stock in focus today as Yahoo Finance Tech Reporter Allie Garfinkle explores how investors should be viewing the industry juggernaut as it pivots further into artificial intelligence to drive its cloud, gaming, and software segments.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video transcript

JOSH LIPTON: Well, the next few weeks Yahoo Finance has taken a closer look at the Magnificent Seven and what investors should keep in mind with the biggest names in tech today. The focus turns to Microsoft, from ChatGPT to Azure. There is plenty to talk about when it comes to this tech giant. Let's bring in Yahoo Finance's Allie Garfinkle for more. Allie.

ALLIE GARFINKLE: Josh, after years of being thought of as a bit long in the tooth maybe, Microsoft is back. That is what I'm hearing from analysts on the record, off the record, everywhere in between. And you might think that it's all about AI, but actually it's bigger than AI.

What it really goes back to is CEO Satya Nadella's tenure. Over the course of that tenure, now the better part of a decade, he's really been helping recreate Microsoft into a company that's less insular and has its hands in all sorts of piles, right? It's not just software anymore. It's cloud. It's cybersecurity. It's gaming. It's AI. In short, the investments of the last decade are really starting to pay off.

We've sort of seen that today. Microsoft announcing its 14th consecutive quarterly dividend, but I actually want to give you a metaphor here, something that an analyst said to me. What he said was this. Microsoft is now an aircraft carrier, a giant aircraft carrier. And the thing about a giant aircraft carrier is that while it's hard to maneuver. It's hard to turn around. It's also hard to stop once it's really barreling forward.

JOSH LIPTON: And, Allie, some investors when they hear, hey, listen, everybody on the Street is the same sign on the same side. Everyone's bowled up. They get a little nervous. When you think about Microsoft, all these advantages, all these benefits, what are some of the risks you think, though, investors also have to keep in mind?

ALLIE GARFINKLE: There are certainly a lot of risks, Josh. one of the things to consider is AI itself is a risk. Nature of tech itself is risk. Again, Microsoft is this giant aircraft carrier that can really turn around very slowly. So if they have to change course, it's going to be tough.

That said, I am always a little bit risk averse. And I'm always thinking about valuation. And what I'm hearing from the Street is Microsoft is actually not at the top of its evaluation just yet. Few years ago, they were trading at around 35 times. Now it's closer to 29, 30. And analyst recommendations, you're right. Across the board, almost everyone is saying, buy. 54 buys, 6 holds, 1 sell.

Ultimately, what I would say here is what happens next for them and probably for you is if you really believed in this AI-fueled growth theory. Do you believe they're going to be able to use AI to drive cloud, to drive gaming, to really drive wins in cybersecurity and software. If you believe that, if the answer to those questions is yes, then Microsoft has room to run. If not, well, then you're having a different conversation.

JOSH LIPTON: Allie, I love it, breaking down the entire bull-bear debate on Microsoft. Thank you so much.