Shares of Microsoft Corporation (NASDAQ: MSFT) opened lower on Friday due to the rising cases of coronavirus outside the China region, which could weaken its performance in the near-term. The stock, which has been trading near the record high in early February, has fallen to become cheaper. Is the stock looking overvalued or cheap?
Last week, the shares achieved a saturation point and have started the free fall. This has been considered a rewarding investment opportunity for investors. Microsoft is expected to grow its operations at double digits but the coronavirus outbreak has narrowed the growth prospects.
The company has been experiencing significant weakness in its investments and this is likely to bring down the top-line growth rate to the high-single digits. Also, the investments in its infrastructure are expected to increase operating costs to support cloud computing services. The software giant does not expect to meet its revenue forecast for a key segment that includes Windows.
The markets experienced the worst nightmare week since the 2008 financial crisis as the stocks remained in the red due to the panic selling associated with the coronavirus outbreak. The coronavirus cases spreading outside China have turned out to be a global concern as all stock markets worldwide were lower.
Microsoft’s revenue in the near-term is expected to be impacted by lower IT spending arising from the coronavirus outbreak. The demand for PCs, servers and other computing devices is likely to weaken due to a decline in consumer or business spending.
For the second quarter, Microsoft reported a 38% jump in earnings driven by a 14% rise in the top line. Revenue in Productivity and Business Processes increased 17% and the company saw double-digit increases in Office Commercial and Consumer products and cloud services. LinkedIn revenue increased by 24%.
The stock, which opened lower, rebounded to the green territory in the mid-afternoon. The shares closed Friday’s regular session up 2.42% at $162.01 on the Nasdaq. The stock has risen over 3% in the past three months but has fallen over 4% in the past month.
Relative to the blue-chip companies on the Nasdaq, the software giant’s stock looks overvalued. However, the market experts believe that when considering the past growth performance, the company is cheaply valued despite being a better contender in the cloud market.
The company’s future looks promising due to its increasing cloud capabilities. The cloud sector is expected to grow at an exponential pace and Microsoft could be benefited due to its market share. Along with this, the artificial intelligence, subscription model, Azure, gaming, and LinkedIn are remaining the future growth prospects of the company.