Small-cap stocks still look cheap after big July rally, Vanguard CIO says
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Jul 30 2024
0mins
Should l Buy MSFT?
Source: CNBC
Small-Cap Stock Rally: Vanguard's Greg Davis believes the recent rally in small-cap stocks has potential for further growth due to their relative valuation compared to large-cap stocks, with notable performance from small-cap value ETFs.
Market Outlook and Policy Impact: Davis advises investors to focus on long-term goals amidst political noise and anticipates Federal Reserve rate cuts that could benefit small-cap stocks, depending on economic growth and inflation trends.
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Analyst Views on MSFT
Wall Street analysts forecast MSFT stock price to rise
34 Analyst Rating
32 Buy
2 Hold
0 Sell
Strong Buy
Current: 403.930
Low
500.00
Averages
631.36
High
678.00
Current: 403.930
Low
500.00
Averages
631.36
High
678.00
About MSFT
Microsoft Corporation is a technology company that develops and supports software, services, devices, and solutions. Its Productivity and Business Processes segment consists of products and services in its portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. It comprises Microsoft 365 Commercial products and cloud services; Microsoft 365 Consumer products and cloud services; LinkedIn, and Dynamics products and cloud services. The Intelligent Cloud segment consists of its public, private, and hybrid server products and cloud services. It comprises server products and cloud services, including Azure, and enterprise and partner services, including Enterprise Support Services. Its More Personal Computing segment primarily comprises Windows and Devices, including Windows OEM licensing; Gaming, including Xbox hardware and Xbox content; Search and news advertising, comprising Bing and Copilot, Microsoft News, and Microsoft Edge.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Increased Quantum Investment: Microsoft is heavily investing in its quantum computing ecosystem, introducing the Majorana 1 quantum processor aimed at enhancing computational stability and reducing errors, laying the groundwork for future commercialization.
- Data Center Expansion: The company added nearly 1 gigawatt of data center capacity in Q2 to address the challenge of Azure service demand exceeding supply, demonstrating its ongoing investment and strategic positioning in cloud infrastructure.
- Rapid AI Application Adoption: Microsoft’s Copilot user base surged over 160% year-over-year to 15 million paid users, showcasing its ability to successfully leverage AI in enterprise workflows, further driving revenue growth.
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- Contract Dispute: ITI emphasized that contract disputes should be resolved through ongoing negotiations or by selecting alternative suppliers via established procurement channels rather than through emergency measures like supply chain risk designations, which are typically reserved for entities identified as foreign adversaries, reflecting strong opposition to government actions.
- Procedural Protections: The letter referenced the Federal Acquisition Supply Chain Security Act of 2018 and the Federal Acquisition Security Council (FASCSA), highlighting the importance of due process for private companies, including notice and response opportunities before any risk designation is made, underscoring ITI's commitment to procedural fairness.
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- Contract Dispute Resolution: The Information Technology Industry Council (ITI) stated in their letter that contract disputes should be resolved through negotiations or by the Department selecting alternative providers, rather than imposing supply chain risk designations, which could adversely affect U.S. companies.
- Historic Decision: Anthropic, awarded a $200 million DoD contract in July, had its request to ensure its technology wouldn't be used for autonomous weapons or mass surveillance rejected by the Pentagon, leading to this unprecedented risk designation, which ITI argues has never been applied to an American company before.
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- Investor Position Increase: Steve Weiss, CIO of Short Hills Capital, and Bill Baruch, founder of Blue Line Capital, have recently increased their positions in Microsoft, asserting that the company is well-positioned in the AI space, and while some damage may occur, the overall outlook remains positive.
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- Surge in Enterprise Demand: Anthropic's business now derives 80% from enterprise customers, with an annual revenue run rate nearing $20 billion, up from $14 billion just weeks ago, indicating strong demand and potential market leadership in the enterprise AI sector.
- Regulatory Risk: The Trump administration's designation of Anthropic as a supply chain risk after it refused the Pentagon's terms has led to defense contractors dropping its technology, which could significantly impact customer trust and market share.
- Shift in Technology Reliance: As the government scrutinizes Anthropic, companies are reassessing their reliance on a single AI provider, with many evaluating multiple vendors simultaneously to mitigate risks, potentially altering the supply chain dynamics across the industry.
- Legal Challenges and Brand Impact: Anthropic plans to contest the government's supply chain risk designation legally; while its brand has benefited from consumer safety concerns, ongoing legal battles may affect investor confidence and the pace of market expansion.
See More
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- Significant Cloud Growth: In Q2 of fiscal 2026, Microsoft reported a 16.7% year-over-year revenue increase to $81.3 billion, with cloud services contributing $51.5 billion, up 26%, indicating strong market demand and sustained growth potential.
- Increased Quantum Investment: Microsoft is heavily investing in its quantum computing ecosystem, introducing the Majorana 1 quantum processor aimed at enhancing computational stability and reducing errors, laying the groundwork for future commercialization.
- Data Center Expansion: The company added nearly 1 gigawatt of data center capacity in Q2 to address the challenge of Azure service demand exceeding supply, demonstrating its ongoing investment and strategic positioning in cloud infrastructure.
- Rapid AI Application Adoption: Microsoft’s Copilot user base surged over 160% year-over-year to 15 million paid users, showcasing its ability to successfully leverage AI in enterprise workflows, further driving revenue growth.
See More
Tech Industry Voices Concerns Over Supply Chain Risk Label
- Industry Response: The Information Technology Industry Council (ITI) sent a letter to Defense Secretary Pete Hegseth expressing concerns over his designation of a U.S. company as a supply chain risk, indirectly referencing Anthropic, which could jeopardize its future government contracts.
- Contract Dispute: ITI emphasized that contract disputes should be resolved through ongoing negotiations or by selecting alternative suppliers via established procurement channels rather than through emergency measures like supply chain risk designations, which are typically reserved for entities identified as foreign adversaries, reflecting strong opposition to government actions.
- Procedural Protections: The letter referenced the Federal Acquisition Supply Chain Security Act of 2018 and the Federal Acquisition Security Council (FASCSA), highlighting the importance of due process for private companies, including notice and response opportunities before any risk designation is made, underscoring ITI's commitment to procedural fairness.
- Anthropic's Position: Anthropic expressed deep sadness over the decision in a statement, arguing that labeling it as a supply chain risk is unprecedented and historically reserved for U.S. adversaries, which could severely impact its relationship with the Defense Department and the broader tech industry.
See More
Tech Industry Raises Alarm Over Supply Chain Risk Designation by Defense Secretary
- Supply Chain Risk Warning: On March 2, Defense Secretary Pete Hegseth announced the designation of AI company Anthropic as a supply chain risk to national security, prompting strong opposition from the tech industry, particularly from ITI members including Nvidia and Google.
- Contract Dispute Resolution: The Information Technology Industry Council (ITI) stated in their letter that contract disputes should be resolved through negotiations or by the Department selecting alternative providers, rather than imposing supply chain risk designations, which could adversely affect U.S. companies.
- Historic Decision: Anthropic, awarded a $200 million DoD contract in July, had its request to ensure its technology wouldn't be used for autonomous weapons or mass surveillance rejected by the Pentagon, leading to this unprecedented risk designation, which ITI argues has never been applied to an American company before.
- Industry Reaction: OpenAI CEO Sam Altman remarked that enforcing the SCR designation on Anthropic would have detrimental effects on the industry and the country, highlighting the tech sector's significant concern and unease regarding government policies.
See More
HubSpot and Other Software Stocks Are Recovering; Anticipate Upcoming Developments.
Software Stocks Recovery: Software stocks are showing signs of recovery after a period of decline due to concerns about AI impacting their business.
Investor Concerns: Investors may soon discover which companies are truly at risk from the rise of artificial intelligence.
See More
Investors Claim Microsoft Stock is Cheap at Current Prices
- Stock Price Decline Context: Microsoft has seen a 15% drop in stock price this year, making it the largest victim of the broader sell-off in the software sector, with investors expressing concerns over potential disruptions from artificial intelligence; however, some investors on CNBC's program challenged this view.
- Investor Position Increase: Steve Weiss, CIO of Short Hills Capital, and Bill Baruch, founder of Blue Line Capital, have recently increased their positions in Microsoft, asserting that the company is well-positioned in the AI space, and while some damage may occur, the overall outlook remains positive.
- Valuation Support Analysis: Baruch noted that Microsoft is currently trading two standard deviations below its long-run price-to-earnings ratio, which he sees as a significant support level, suggesting that the recent price decline could represent a long-term buying opportunity and recommending investors consider increasing their Microsoft holdings to a weight level.
- Market Recovery Expectations: Joe Terranova from Virtus Investment Partners views Microsoft as a proxy for OpenAI, stating that if the software sector rebounds, Microsoft's stock will rise, and despite some investors' concerns about the sustainability of Azure's growth, he believes these fears are unfounded.
See More
Anthropic Faces Regulatory Challenges Amid Rapid Growth
- Surge in Enterprise Demand: Anthropic's business now derives 80% from enterprise customers, with an annual revenue run rate nearing $20 billion, up from $14 billion just weeks ago, indicating strong demand and potential market leadership in the enterprise AI sector.
- Regulatory Risk: The Trump administration's designation of Anthropic as a supply chain risk after it refused the Pentagon's terms has led to defense contractors dropping its technology, which could significantly impact customer trust and market share.
- Shift in Technology Reliance: As the government scrutinizes Anthropic, companies are reassessing their reliance on a single AI provider, with many evaluating multiple vendors simultaneously to mitigate risks, potentially altering the supply chain dynamics across the industry.
- Legal Challenges and Brand Impact: Anthropic plans to contest the government's supply chain risk designation legally; while its brand has benefited from consumer safety concerns, ongoing legal battles may affect investor confidence and the pace of market expansion.
See More
