TLDR
- Microsoft labeled a “battleground stock” by Jim Cramer due to aggressive data center build-out
- Data centers described as “the single biggest investment story for months”
- Microsoft recently announced development of Majorana 1 quantum chip, marking significant quantum computing breakthrough
- Despite quantum computing advancement, MSFT stock traded sideways following the announcement
- Wall Street maintains Strong Buy consensus with 29 Buy and 3 Hold ratings, average price target of $510.38 (30% upside)
Microsoft Corporation (NASDAQ:MSFT) finds itself in a complex position as market sentiment shifts around data center investments while the company pushes forward with quantum computing breakthroughs.
Jim Cramer, host of CNBC’s Mad Money, recently labeled Microsoft a “battleground stock.” This description comes amid concerns about the company’s aggressive data center expansion strategy.
Cramer highlighted data centers as “the single biggest investment story for months on end” during his February 25 broadcast. He noted this theme isn’t always obvious when looking at broader market indices.
The Mad Money host described the changing sentiment around data centers as “a sea-change” happening in real time. He colorfully characterized it as “a snorting bull turned into a grizzly, scratching and clawing back the gains in your portfolio.”
Microsoft, alongside other tech giants like Amazon, Alphabet, Meta, Oracle, and Tesla, has become increasingly dependent on data centers. These massive server warehouses form the backbone of modern tech operations.
The situation has grown more complicated as a Chinese company reportedly found ways to achieve similar data center results with fewer, less expensive chips. This development has thrown the entire industry into uncertainty.
Adding to these concerns are worries about possible tighter export controls on Chinese technology from the Trump administration. Such measures could further impact the data center landscape.
In January, Cramer expressed reservations about Microsoft. He cited concerns about the company’s “aggressive data center build-out, so far failed AI PC, a possible fallout with OpenAI, and the possibility that Copilot is nothing but Clippy 2.”
Despite these challenges, Microsoft is making strides in quantum computing. Earlier this month, the company announced the development of its Majorana 1 quantum chip.
The Majorana chip represents a significant improvement in quantum computing capabilities. This breakthrough could accelerate development timelines for this revolutionary technology.
Market reaction to the quantum announcement has been subdued. Share prices have actually slipped slightly since the news broke.
One investor, known by the pseudonym Weebler Finance, remains optimistic about Microsoft’s quantum endeavors. “Microsoft’s Majorana chips mark a groundbreaking quantum computing breakthrough, potentially bringing practical quantum computers closer to reality,” the investor stated.
Weebler compared quantum computing’s trajectory to that of OpenAI. While OpenAI was founded in 2015, it only gained widespread attention after releasing ChatGPT in late 2022.
Wall Street maintains a positive outlook
Wall Street maintains a positive outlook on Microsoft despite the mixed narratives. The stock currently has 29 Buy ratings and only 3 Hold ratings, resulting in a Strong Buy consensus.
The 12-month average price target for MSFT stands at $510.38. This represents potential upside of nearly 30% from current levels.
Microsoft’s EV/EBITDA ratio of 21.6x is considered attractive within the systems software industry. This valuation metric supports the bullish case even without factoring in potential long-term benefits from quantum computing advances.
According to Insider Monkey’s database, Microsoft remains popular among institutional investors. The company had 317 hedge fund holders as of the fourth quarter of 2024.
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