Buy Microsoft stock to hedge against a coming recession: UBS

October 23, 2023 11:29 AM PDT | By Invezz

Buy Microsoft stock to hedge against a coming recession: UBS — Image source: Invezz

MSFT will remain an AI beneficiary

The investment bank expects United States to see a mild recession next year that typically tends to weigh on equities.

But Microsoft stock, as per Keirstead, will hold its own in the face of a challenging economic backdrop partly because it has been investing rather aggressively in artificial intelligence.

I’d characterise MSFT as more defensive than cyclical. Even in a tough macro, Microsoft has some powerful, idiosyncratic catalysts in the form of AI.

Microsoft will report its financial results for the first quarter tomorrow – after the bell. Consensus is for it to earn $2.65 a share versus $2.35 per share a year ago.

Imagine Microsoft Xbox getting these IPs! 😳 Transformers is one of them as well! 🤯 Lets hope the rumors are true! 🔥💯 pic.twitter.com/VfkutPjivL

— Darrius Fears (@TheRealDfea) October 19, 2023

Microsoft stock has upside to $400

Karl Keirstead is convinced that Microsoft Inc is now only weeks away from seeing returns on what it has spent on AI as its Copilot becomes available on November 1^st.

Its diversified business and recurring subscription revenues will translate to better resiliency in the midst of a slowdown, he added. The tech behemoth now generates about 75% of its total sales from cloud and productivity services.

The UBS analyst likes Microsoft stock because the strength of its free cash flow makes it relatively less sensitive to interest rates as well.

He finds the multinational reasonably valued at 34 times its forward free cash flow considering its growth prospects. Keirstead sees upside in MSFT to $400 which suggests a 20% upside from here.

Watch here: https://www.youtube.com/embed/jgZBUQaUMBI?feature=oembed

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