Microsoft (NASDAQ: MSFT) Stock has gone nowhere over the past year and is currently hovering about a minimum of six months. The company has done an excellent job in monetizing artificial intelligence (AI), but the reported efficiency improvements in AI models like Deepseek have cast a Spotlight on AI expenditure and triggered anxiety.
Out of the 30 components in the Dow Jones's industrial average(Djindices: ^dji)Microsoft stands out as a unique balance of growth potential, value, and little passive income like the cherries on top of a strong basic investment essay. Many other Dow components have strong earnings growth or are good value, but not both.
This is why Microsoft is my Top Dow Jones stock to buy now.
Image source: Getty images.
Let's go on a trip back to 2023: Microsoft comes off a big year down, with the stock dropping 28.7% in 2022 in a lock step with a cruel decline across large technology.
Management hosted his Fiscal earnings 2023 second quarter call on January 24, 2023. During the call, the company shared exciting news about AI and partnership with Openai, including support for Chatgpt and news that Microsoft will be an unique Openai-Dan cloud provider Azure AI Services.
As 2023 continues, the excitement of AI begins, with Nvid (NASDAQ: NVDA) Report an exponential growth in the sales of graphics processing units (GPUs) for data centers. Microsoft stock finished 2023 56.8% higher, excluding the year at $ 376.04 the share. Since then, the stock is up only 8.6%.
This is a good example of the price of company stock coming ahead of essentials. AI has been a game transformer for Microsoft, leading to faster top -line growth and higher edges. But it has not led to the growth of paradigms in the same way as it is for other major technology stocks such as Nvid and Meta platforms. Instead, Microsoft uses AI to improve existing products and develop new equipment and services.
Microsoft 365 Copilot is an AI tool for the company's flagship software room. In his Fiscal earnings 2025 second quarter call, the 365 Copilot management called “the UI for AI” -Sy means he handles the productivity of everyday workers. (UI stands for a user interface.) It continues to see an accelerated adoption for 365 Copilot.
GitHub Copilot helps improve developer efficiency. GitHub now has 150 million developers, a 50% increase in just two years.
In the second financial quarter 2025, Azure and other cloud services grew 31% year -on -year, including a 157% increase in AI services.
Beyond Microsoft 365, Github, and Azure, Microsoft has other software products like teams, Bing, and LinkedIn. It also has a huge gaming segment with Xbox and Activision Blizzard and sells consumer products like Microsoft Surface and Computer Accessories, among other things. Despite traditionally so many final markets and lower edge hardware offerings, the company has grown revenue and edges at an impressive rate.
The following chart shows how Microsoft's accelerated sales growth in recent years has also brought higher margins, which witnessed the profitability of AI investments.
However, there are concerns that Microsoft's AI expenditure could be overwhelmed.
This financial year, management plans to spend $ 80 billion on AI and cloud applications. The huge investment could affect almost season profitability.
Estimated analysts' consensus calls for $ 13.16 in financial earnings 2025 per share (EPS) and $ 15.07 in Financial EPS 2026. For Cyd. context, Microsoft reported $ 11.80 in diluted EPS in 2024 fiscal, an increase of 20% of its Compared to 2023 financial, but the financial target 2025 suggests a growth of only 11.2%. So at least in the near season, earnings growth slows down. And edges could also decrease if AI expenditure does not immediately translate into measurable results.
At any time a company betrays an idea, it puts pressure on those investments to pay off. But there is also a risk of being too idle and falling behind in the AI race.
Therefore, the two biggest questions that an investor should ask are whether the company can afford to spend this much on AI without hurt its financial health, and whether the investment dollars go towards worthwhile efforts.
In terms of financial health, Microsoft is as good as it gets. The company ended with the 2024 calendar year with $ 71.56 billion in cash, cash equivalent, and short -term investments and only $ 39.72 billion in long -term debt. Financially 2024, ending June 30, 2024, repurchasing $ 17.25 billion in stock and paid $ 21.77 billion in dividends. Although the dividend payment was higher, the aftermath was about $ 5 billion less than in 2023 financial.
Management could continue to withdraw on stock repurchase to fund its AI investments without undertaking more debt. However, purchases have helped to compensate for the cost of Microsoft stock compensation based on stock and reduce its share account over time, accelerating EPS growth. Reduced retardation would put pressure on the core business to drive earnings growth.
In summary, Microsoft can afford to spend more on AI.
In terms of the second million-dollar question, there is a reason to believe that the AI investments are worth it. Microsoft is currently the No. 2 cloud player, in front of Alphabet's Google Cloud but behind Hamazon Web Services.
As demand for cloud computing grows to support AI workflows, Microsoft wants to ensure that it is well placed to take market share by providing advanced data centers and the best AI services. If it does not take a market share, its investments could still pay off as long as the general cloud computer pie is growing.
As a legacy technology company, Microsoft has not been transformed by AI in the same way as smaller companies growing faster Palantir Technologies Or more pure names like Nvidia. But it has been a net positive for the company. And Microsoft has the financial health and deep pockets necessary to pour money to build AI infrastructure.
The price of steady stock and the growth of constant earnings has pushed Microsoft's price-to-ears ratio (P/E) to its lowest level in a year. In fact, its P/E is currently 33, which is around its average over the last three to 10 years. But it is arguably a much higher quality business with better growth prospects today than in recent years, making its valuation even more compelling.
As mentioned, management spends tons on dividends each year. The company has increased its holding every year for nearly two decades, and while the stock produces only 0.8%, Microsoft's increasing dividend provides an additional incentive to buy and hold the stock.
With a varied business model, affordable AI budget, and reasonable pricing, Microsoft checks all the boxes for basic growth stock to buy now and build a portfolio around it.
Have you ever felt you lost the boat while purchasing the most successful stocks? Then you will want to hear this.
At rare times, our specialist team of analysts publishes a “Double Down” Stock Recommendation to companies they think are about to pop. If you're worried that you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves:
Nvidia:If you invested $ 1,000 when we doubled in 2009,You would have $ 348,579!*
Apple: If you invested $ 1,000 when we doubled in 2008, You would have $ 46,554!*
Netflix: If you invested $ 1,000 when we doubled in 2004, you would have $ 540,990!*
We are currently issuing “double down” warnings for three amazing companies, and there may be no other chance like this anytime soon.
Randi Zuckerberg, former Market Development Director and spokesman for Facebook CEO and Meta Platforms, Mark Zuckerberg, is a member of the Board of Directors of the Motley Fool. John Mackey, former CEO of Whole Foods Market, a Sub -company from Amazon, is a member of the Board of Directors of the Motley Fool. Suzanne Frey, an alphabet executive, is a member of the Board of Directors of the Motley Fool. Daniel Foelber He does not have a position in any of the stocks mentioned. The Motley Fool has jobs in and recommends the alphabet, Amazon, Meta platforms, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: Long January 2026 $ 395 Calls on Microsoft and Short January 2026 $ 405 Calls on Microsoft. The fool has motley and Disclosure Policy.
