Tech giant Microsoft (MSFT +1.32%) has been an excellent stock to own over the years. In the past decadeit has risen by around 660%which translates into a compounded annual growth rate of more than 22% -- that's more than double the S&P 500's long-run average of 10%.
That's what makes the stock's struggles this year all the more noticeable. Since the beginning of the yearMicrosoft's stock has fallen by 18%. That's a big sell-off for what's traditionally been a safe tech stock to own. What's behind this declineand could it be the start of an even bigger crash ahead for Microsoftor could this be a great time to add it to your portfolio?
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Is artificial intelligence (AI) to blame?
Microsoft is down big this yeareven in relation to other tech giants. The Roundhill Magnificent Seven ETF has declined at a more modest rate of 7%. The market as a whole has been bearish on tech stocks of latewith heavy AI spending a big reason for that. But in Microsoft's casethe sell-off goes deeper than that.
It may be a combination of multiple factors that are responsibleincluding the stock trading at a high valuationand the company's Copilot AI simply not appearing to be that impressive in relation to other popular chatbots. As a resultMicrosoft's stock may have been overdue for a decline.
NASDAQ: MSFT
Key Data Points
Why Microsoft still makes for a solid long-term buy
Entering this yearMicrosoft's stock was trading at around 34 times its trailing earnings (it's now around 25)which is a high valuation unless you expected robust AI-related growth. While AI has given it a bit of a boostits growth rate for the December quarter was 17%and that falls to 15% when factoring out foreign exchange. It's solidbut not overly impressive or much higher than what it was before.
Howeverthis is still a robust business with many different segmentsincluding gamingoffice softwaredevicesand othersthat can help the company grow for years. There are also many opportunities for AI to enhance its existing products and services. On top of all thatMicrosoft has incredibly deep pocketsamassing more than $119 billion in profit over the trailing 12 months.
Microsoft's stock was overvalued heading into the yearbut nowwith a more reasonable valuationit may be a great time to buy it. This is a solid blue chip stock that you can build your portfolio around.
