Nvidia stock remains popular with UK investors and for good reason. Not only is the company generating unbelievable revenue growth but it also looks attractively valued.
Yet looking at data from investment platform AJ Bell, another Magnificent 7 stock is seeing more interest from UK investors right now. This growth stock’s well off its highs and investors are buying the dip.
A legendary tech stock
The stock I’m talking about is Microsoft (NASDAQ: MSFT). It’s a global leader in business productivity software, cloud computing and artificial intelligence (AI), and video gaming.
Over the last month, it has been the fourth most bought stock on AJ Bell’s platform. The only three stocks more popular have been BP, Legal & General and Rolls-Royce – more traditional picks for UK investors.
Personally, I’m not surprised Britons are attracted to this Magnificent 7 name. Because right now, it looks a lot like Alphabet (Google) stock 18 months ago.
It went through a period where its share price was depressed due to the fact that investors thought its days as a tech powerhouse were numbered. However, since then, it’s come roaring back – more than doubling in price – as shown it’s still a major player in the tech world.
Why’s it down?
As for why Microsoft shares are depressed today, there are a few reasons. One is that it’s been dragged into the software sell-off (some investors believe that demand for its software products will decline).
Another is that its AI products, such as Copilot, haven’t been life-changing. A third reason is that a lot of its cloud business seems to be coming from ChatGPT owner OpenAI (which it owns a large chunk of) so there’s some customer concentration risk.
Finally, it’s spending a lot of money on AI infrastructure. And there’s no guarantee this spending will generate a strong return on invested capital.
Now, these are all issues to think about from a risk management perspective. However, to my mind, the risk/reward set-up is attractive at current levels.
Is there an opportunity here?
Despite being a very large company (it has a market-cap of approx. $3.2trn today), Microsoft is still growing at a very impressive rate. This financial year (ending 30 June), revenue’s expected to grow about 16%.
Driving this growth is the company’s cloud computing division. This is growing at 20%-30% annually, fuelled by the growth of the AI industry.
Looking beyond the growth, Microsoft’s also extremely strong financially. This is a company with a rock solid balance sheet that pays regular dividends (the yield is quite low) and buys back its own shares. It also has a great record in terms of shareholder returns. Anyone who has owned this stock over the long run has done incredibly well.
As for the valuation, it looks attractive relative to the level of growth. At present, the forward-looking price-to-earnings (P/E) ratio is 22.
Given these attractions, I believe the stock’s worth considering for an ISA or SIPP. But it’s not the only tech stock I like the look of right now.
