Microsoft’s LinkedIn is an ‘underappreciated growth driver,’ says RBC analysts

Wall Street analysts identified a hot under-the-radar business at Microsoft that’s worth watching. The news In a note to clients on Tuesday, RBC Capital Markets described LinkedIn as an “underappreciated growth driver.” The analysts said the career networking service, which Microsoft bought for more than $26 billion in 2016, has had an “impressive transformation from a static job board” into something akin to a customer relationship management/human capital management tool and a learning platform. RBC also cited the potential growth prospects of LinkedIn from generative artificial intelligence integration. The analysts said that AI adoption could attract more customers and improve the overall user experience. RBC maintained its outperform buy rating on Microsoft and its $500 per share price target — both of which are identical to our Club rating and PT. Big picture The RBC note follows Microsoft’s strong fiscal 2025 first-quarter results last week, which exceeded expectations on earnings and revenue. However, revenue guidance for the current quarter missed and the stock dropped 6%. LinkedIn was an under-the-radar bright spot in the release. Revenue rose roughly 10% to $4.29 billion in fiscal Q1, driven by growth across all lines of its business. “Member growth [for LinkedIn] continues to accelerate, with markets like India and Brazil both growing at double digits,” Microsoft CEO Satya Nadella said on the post-earnings conference call. That said, LinkedIn is a small part of Microsoft’s overall revenues, which in fiscal Q1 totaled $65.56 billion. Instead, Wall Street has been focused on the performance of Microsoft’s cloud computing business, Azure, for signs that its massive AI bets such as those in ChatGPT creator OpenAI are paying off. Bottom line LinkedIn optimism is welcome news at the Club. While not a crucial part of Microsoft’s overall top line, it’s still an incremental driver of revenue growth and can help the company further diversify its income streams. LinkedIn booked more than $16 billion of revenue during Microsoft’s 2024 fiscal year. Going forward, LinkedIn is also another example of how AI can be integrated into the software and cloud giant’s various businesses. MSFT YTD mountain Microsoft YTD To be sure, Azure and AI remain key to our investment thesis. Despite solid execution on each, Microsoft has been the worst performer of our Super Six tech stocks — up just over 9% year to date. The S & P 500 has gained nearly 21% in 2024. The morning after last week’s earnings Jim Cramer said Microsoft shares below $400 each would be an interesting buy level. (Jim Cramer’s Charitable Trust is long MSFT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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Wall Street analysts identified a hot under-the-radar business at Microsoft that’s worth watching.

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