Is Microsoft stock just too expensive right now?

Portfolio manager Darren Sissons has nothing but praise for tech giant Microsoft (Microsoft Stock Quote, Chart, News NASDAQ:MSFT) but with the stock at all-time highs, the company’s spectacular run won’t last much longer.

“It’s fair to say that most of the big tech companies have had a fantastic 18 to 24 months. If you look at the chart for Microsoft, it has done really well,” said Sissons, vice president and partner at Campbell, Lee & Ross, in conversation with BNN Bloomberg on Wednesday.

“The cloud business has been a phenomenal winner for them and the company really reinvented itself from a monopoly company with subsidiary services along the side,” says Sissons. “They have a huge cash balance sheet and then they implemented a dividend.”

“[But] at these levels, I’m very reticent to buy companies at 52-week highs but I do think that the whole cloud services business will continue to drive,” he said.

Microsoft has been on a tremendous winning streak dating back a good half-decade, where the stock began 2015 at just over $45 per share and has been climbing steadily to where it now just broke past the $150 mark. That’s including a 2018 which was less than kind to the tech stocks but where MSFT still managed a return of 18.7 per cent. For 2019, the stock is now up 50 per cent.

The company’s latest earnings report is a sign of that success, where Microsoft beat analysts’ predictions for both revenue and earnings while still pumping out superior growth from its cloud business. Delivered in October, Microsoft fiscal first quarter saw revenue climb 14 per cent year-over-year to $33.06 billion versus the consensus expectation of $32.23 billion, while earnings of $1.38 per share was also better than the Street’s $1.25 per share.

For the Q1, Microsoft’s Azure public cloud segment saw 59 per cent revenue growth, down from a 64-per-cent growth rate over the previous quarter, while revenue from Windows commercial products and cloud services grew by 26 per cent, up from 12 per cent a year earlier.

Sissons says investors should be careful with such a hot name, as Microsoft is held in many ETFs and indexed funds, which could have a quick trigger finger on any downturns in the stock.

“I think that that’s one of the drivers. In December of last year we saw a lot of the ETFs do a lot of big, big selling, and so that’s obviously the downside that you see,” said Sissons. “If the market corrects then the ETFs will be huge sellers and it will be negatively impacting a lot of the big tech names. That’s the bear case.”

“If you can get it at a decent level it’d be fine but just be wary of companies that have had huge runs because the runs don’t always last and once they correct and stabilize they can be dead money for quite a period of time,” he added.

“For us, the valuation is too rich here and the run is too long, but if we saw a correction it may be something that I would look at. I think that the fundamentals of the business are solid but I just don’t want to pay for those fundamentals at a high price,” Sissons said.