Microsoft Stock (NASDAQ:MSFT)
Because technology stocks have had such a phenomenal run recently, you might feel the urge to unload some of your holdings in order to prepare for the inevitable market correction.
Microsoft and Nvidia are two of the few companies that have been able to achieve the level of success and dominance that they have in the ever-shifting landscape of the technology industry. These industry giants have repeatedly shown that they are capable of innovating, adapting, and delivering cutting-edge solutions in order to satisfy the requirements of the modern world.
Microsoft: Revolutionizing the Tech World
Microsoft’s extensive product portfolio caters to a wide range of consumer and enterprise needs. From the ubiquitous Windows operating system to the popular Office productivity suite, Microsoft has established itself as an integral part of our digital lives. Moreover, the company’s foray into cloud computing with Azure has positioned it as a leader in the rapidly expanding cloud services market.
Nvidia: Powering the Future with Advanced Graphics and AI
Nvidia‘s GPUs have become the gold standard in the gaming industry, providing unparalleled graphics capabilities and immersive experiences. Gamers worldwide recognize and appreciate Nvidia’s commitment to pushing the boundaries of visual excellence, enabling them to enjoy the most realistic and captivating gaming environments.
In recent years, Nvidia has made significant strides in the field of artificial intelligence. The company’s GPUs, with their immense parallel processing power, have become the go-to choice for training and running AI models. Nvidia’s data center solutions, powered by their GPUs, have been embraced by tech giants and researchers worldwide, fueling advancements in fields such as machine learning, deep learning, and data analytics.
Hold on to your shares if you are an investor with a long-term perspective. After taking into account the rate at which they are increasing their profits, many of the most well-known companies on the market, such as Microsoft (NASDAQ:MSFT) and Nvidia (NASDAQ:NVDA), are still priced at a level that is considered to be reasonable.
Since the bear market low that was reached in late December, the Nasdaq 100 index, which is comprised of just over 100 of the largest non-financial companies listed on the Nasdaq Composite, has increased by approximately 34%. In comparison, the S&P 500 stock index has increased by 9% since the beginning of the year, while the Vanguard S&P 500 Value Index Fund ETF (VOOV) has increased by only 4%.
Since their respective low points in late 2022, Nvidia and Microsoft have seen increases of more than double and approximately 55%, respectively. The stock of Meta Platforms (NASDAQ:META) has almost doubled from its low point in the second half of 2022, while the stock of Alphabet (NASDAQ:GOOGL) has increased by approximately 50%. These businesses are incorporating artificial intelligence into their products, which is expanding the markets in which they can offer their services. At the same time, declining bond yields have led to an increase in the valuations of these businesses.
When compared to the value of the Russell 2000, the value of the Nasdaq 100 is approximately eight times what it was a few months ago when it was just under six times. The last time that the Nasdaq 100 outpaced the Russell 2000 to a similar degree was in the year 2020. At that time, extremely low-interest rates pumped up growth stock valuations, and restrictions related to Covid kept people inside and on screens, which boosted earnings for streaming, social media, and work-from-home necessities such as the cloud. Since then, the Nasdaq 100 has not outpaced the Russell 2000 to a similar degree.
That didn’t work out so well for the tech industry. Higher inflation caused interest rates to skyrocket, and as the pandemic began to abate, people started spending more time away from home, which resulted in decreased earnings in the technology sector. The outcome was that the Russell 2000 outperformed the Nasdaq 100 for the majority of 2021 and 2022.
This time around, things might turn out differently. Even though the performance of technology stocks is likely to level off in the near future and investors may find better opportunities in certain segments of the market, the long-term trends that are driving the technology sector are still intact.
According to FactSet, analysts for Nvidia, Microsoft, Meta Platforms, and Alphabet anticipate growth in earnings per share of more than ten percent over the course of several years. In the meantime, valuations, despite being high, are not completely out of hand.
Both Alphabet and Meta are currently trading at just over 20 times the expected earnings per share for the coming year, which is less than two times their anticipated annual earnings per share growth rates for the coming few years. Although Nvidia and Microsoft traded at 48 times and 30 times their earnings, respectively, this is still less than two times their anticipated EPS growth. Nvidia trades at 48 times its earnings, while Microsoft trades at 30 times its earnings. When compared to the S&P 500, which trades at 18 times earnings, and is forecast to experience EPS growth of just 8% over the next couple of years, these valuations aren’t crazy at all.
It is not going to be an easy ride for tech stocks because it never is. Technical analysts speculate that there may be a shortage of buyers because portfolio managers have already amassed a large number of technology stocks and do not wish to expose themselves to additional risk at higher prices. Indeed, over the course of the last few trading days, tech stocks have reached a plateau for the first time in quite some time.
However, if you do not believe that developments such as artificial intelligence are here to stay for the foreseeable future, then technology stocks will resume their ascent. Don’t deviate from the path.
In conclusion, the competitive landscape of the technology industry is always shifting, but Microsoft and Nvidia have repeatedly shown that they have what it takes to be market leaders. These businesses have a solid foundation upon which to build a prosperous future thanks to their high market valuations, diverse product lines, and ongoing dedication to technological advancement. Microsoft and Nvidia are in a position to lead the charge as technology continues to reshape our world. Both companies are poised to revolutionize various industries and propel us toward a future that is more connected and technologically advanced.
Featured Image: Unsplash @ Turag Photography
