Yesterday, Microsoft achieved an all-time high close at $363.20 with the OpenAI optimism, and investors are capitalizing on the AI rally. In July, MSFT reached a peak at $366.78 but couldn’t sustain the gains. Over the last three daily closes, MSFT completed a 2.5-year-long cup and handle formation, securing three closes above the crucial $350 mark for the formation. If the formation proves effective, Microsoft might experience a surge of up to $485, indicating a potential return of over 30%.
However, several risks, such as of below-average volume during the breakout and during the all of the handle formation. Additionally, from a valuation perspective, it could be argued that MSFT appears slightly overvalued based on the last 2- and 5-year averages of price-to-earnings, price-to-sales, and price-to-EBITDA ratios. Despite these risks, the uptrend persists with the support of the 34-day moving average. As long as the trend holds, the initial target could be the upper line of the trend channel in the coming weeks (currently at $400). Following a potential pullback towards $350, the uptrend might carry MSFT towards the cup and handle formation’s target in the coming months.
