How to buy and invest in Microsoft shares

Microsoft is one of the world's most successful technology companies and a key member of the Magnificent 7 - a select group of global technology giants renowned for their growth potential and strong market performance. Here's everything you need to know about investing in Microsoft shares.

Buying Microsoft stock: how to invest

1. Research Microsoft: analyse the financial performance, competitive position and growth prospects
2. Open an account: download the IG trading app or open an online share trading account
3. Decide how much capital you want to allocate: take into consideration your risk tolerance
4. Place your investment
5. Monitor your position: track your investment performance and stay informed about any developments

What to consider before buying Microsoft shares

Investing in stocks comes with a level of risk and in some cases, you can lose more than initial investment. It’s therefore important to develop a clear investment plan before you start investing, to help mitigate any risks. Here’s a few things to consider:

Understand your financial goals

Identify both short-term and long-term goals to guide your investment amount and holding period. Microsoft shares are typically suited for investors with a 10-year investment horizon.

Assess your risk tolerance

Microsoft is considered a medium-risk investment. While the company benefits from established products and subscription-based revenue, technology stocks can experience volatility.

Develop a risk management strategy

• Hold Microsoft stock for at least 10 years to benefit from long-term growth potential
• Diversify across different asset classes and industries
• Stay informed about geopolitical events and market trends

How to research Microsoft stock as an investment

Fundamental analysis is one approach to assess Microsoft shares performance. This method examines financial reports and external factors that may affect the stock's performance.

You can analyse the health of the economy and its sectors, study news reports, consider the competition, explore supply and demand, and evaluate production costs. By gathering this information, you may identify Microsoft's inherent value.

Earnings per share

Earnings per share (EPS) determines the value attached to each share and indicates business profitability. It's calculated by dividing Microsoft's profit by the number of outstanding shares.

P/E ratio

P/E ratio outlines how much you pay for shares to gain $1 in profit. P/E ratio is calculated by dividing Microsoft's current market value per share by its EPS.

Once you've established Microsoft's P/E ratio, you might consider comparing it to other tech companies, like Apple and Alphabet. A low P/E ratio compared to competitors may suggest that Microsoft shares are undervalued, while a high P/E ratio could indicate overvaluation.

Business model

A business model refers to the different ways a company generates profit. Originally, Microsoft relied on licensing its software and Windows operating system, but its business model has evolved significantly. This transformation accelerated in 2014 when Microsoft shifted focus to product integration.

Microsoft's business model comprises four segments:

• Productivity and business processes: information, communication and productivity tools
• Intelligent cloud: server products and cloud services
• Personal computing: user and developer solutions
• Corporate and other: alternative products and services

Remember that share prices can fluctuate and you could lose money as well as make it. Past performance doesn't guarantee future results, and this information is for educational purposes only.

Why buy Microsoft shares?

Alongside Apple, Microsoft is considered one of the world's most successful technology companies. Since its launch in 1975, the company has remained at the forefront of technological advancements and continues to evolve with industry trends.

Artificial intelligence positioning

Over the coming years, artificial intelligence is expected to continue growing. Microsoft's early investment in this technology, particularly through its partnership with OpenAI, has positioned the company as a potential market leader within the sector.

Cloud computing leadership

Microsoft is also a leader in cloud computing. Its Azure cloud platform ranks second only to Amazon Web Services (AWS) and continues experiencing growth as more businesses adopt cloud-based environments.

Subscription revenue model

Microsoft's cloud-based subscription service, Office 365, continues gaining popularity and provides a consistent revenue stream for the company.

Investment characteristics

Microsoft shares may offer investors exposure to growth, innovation and relative stability. The company's quarterly dividend payments could also appeal to income-focused investors.

However, remember that all investments carry risks, share prices can fall as well as rise, and you may get back less than you invest. Consider your investment goals and risk tolerance before investing.

Find out how to buy Apple shares

What to do after you buy Microsoft shares

After purchasing Microsoft shares, it's important to monitor their performance using your chosen trading platform. Staying informed about market movements helps you identify potential opportunities and risks.

Regular monitoring

Track your Microsoft investment performance through your trading app or online platform. This allows you to stay updated on share price movements and overall portfolio performance.

Stay informed

Keep up to date with:

• Microsoft's quarterly earnings reports
• Product launches and strategic announcements
• Technology sector developments
• Broader market trends that may impact tech stocks

Review your investment goals

Periodically assess whether Microsoft shares still align with your investment strategy and long-term financial goals. Market conditions and your personal circumstances may change over time.