“Microsoft’s Quantum Breakthrough: Should You Invest in Its Stock Now?” | The Motley Fool

Big tech companies are making waves with their new inventions. Meta Platforms is working on augmented reality glasses you can control with your hands. Alphabet is pushing ahead with self-driving cars. Meanwhile, Amazon is using robots to make its warehouses more efficient. These advancements help these companies stay ahead and prepare for the future.

Microsoft (MSFT 1.14%) has just announced an exciting new quantum computing chip named Majorana 1. This innovation could be a game-changer, moving us closer to practical quantum computing and changing the landscape of cloud computing.

What does this mean for Microsoft stock?

The future of cloud computing?

Let me break down what Majorana 1 is all about. Traditional quantum computers are often unstable and mostly stuck in labs. But Microsoft has created a new material called a topoconductor. This could make quantum chips larger and more stable, paving the way for broader use.

This breakthrough is important because larger quantum computers can tackle complex problems much faster than conventional ones. Just a few quantum bits, or qubits, can solve issues that would take regular computers years. This could lower computing costs dramatically, which is crucial as more technologies, like artificial intelligence (AI) and self-driving cars, depend on it.

A technological wonder not yet ready for commercial sales

One major hurdle for using advanced digital tools worldwide is the high cost of computing power. New AI technologies require a significant investment in data centers along with the needs of cloud computing, streaming, and advanced devices. Microsoft plans to spend around $80 billion on AI-related capital expenses by 2025, and it’s just one of many companies investing heavily in this area. In the coming years, trillions could be spent on data centers across the tech industry, especially with contributions from countries like China.

This is why quantum computing could be so significant. If they can make computing cheaper, advanced AI tools could reach billions. It would also speed up work in fields like biotechnology and simulations that take forever for regular computers to solve. Exciting prospects await!

However, it’s essential to keep expectations in check. The Majorana 1 is still a prototype and not ready for the market. Although Microsoft believes it has sped up the timeline for quantum computing, we might still be years—if not decades—away from widespread adoption. In the near term, Microsoft’s focus will likely be on how its spending on AI leads to growth.

MSFT PE Ratio data by YCharts

Should you buy Microsoft stock?

Even with all the buzz about AI and new announcements, Microsoft is currently down about 15%. This drop is one of its worst in a decade, likely triggered by CEO Satya Nadella’s comments about an upcoming surplus of AI data centers. He made these remarks when he revealed the Majorana 1 chip.

Now, Microsoft shares are trading at a trailing price-to-earnings ratio (P/E) of 32. While this is slightly higher than the S&P 500’s 30, it may still represent good value for a tech giant. Microsoft’s revenue is growing at about 12% annually, with operating income rising even faster at 17% last quarter. This momentum could continue, especially with the anticipated growth in AI-driven revenue within its cloud division, which could lower the P/E in the coming years.

If you’re hopeful about Microsoft’s trajectory, this might be a smart time to consider an investment.