We’re changing our rating on Microsoft — and making sense of Boeing’s latest delay
Every weekday, CNBC Investment Club with Jim Cramer publishes Homestretch, an actionable afternoon update just in time for the final hour of trading on Wall Street. Note: This story has been updated since it was first published to include new information regarding Energy Secretary Chris Wright’s social media post. Stocks recovered from early declines and oil fell to the low $80s after the International Energy Agency announced it was meeting with G7 Energy Ministers in Paris to share their views on the global oil and gas market. The IEA said it would hold an extraordinary meeting with member governments later on Tuesday to assess security of supply and market conditions due to current circumstances and to decide whether emergency stocks should be made available. The IEA said its member countries have public emergency oil stocks of more than 1.2 billion barrels, as well as 600 million barrels of industrial inventory held under government obligation, providing some short-term firepower to offset supply disruptions. Shortly after 1 p.m. ET, the stock market rally initially gained momentum as oil prices fell below $80 a barrel, following a since-deleted post by U.S. Energy Secretary Chris Wright on X claiming that the U.S. had successfully escorted an oil tanker through the Strait of Hormuz. The White House later said the United States had not escorted a ship in the vital shipping lane for crude oil. As investors digested the confusion, oil rallied from session lows, ultimately settling at $83.45, down 12%. Meanwhile, as of 14.40 GMT, the S&P 500 retreated from the highest levels of the day and held on to modest gains. We downgrade Microsoft once shares find stable ground. During our February Monthly Meeting a few weeks ago, Jim expressed concerns about Microsoft and regretted not selling it last year. “That’s what I’m worried about,” he said. “I slept on it, didn’t pay enough attention. It has the weakest AI business at Copilot and Azure, a cloud computing unit that is no longer the envy of the industry. I’ll be frank: We should have sold Microsoft.” To better align Jim’s views with our rating system, we are changing our rating on Microsoft shares from a 1 to a hold equivalent of 2. Why don’t we sell it here? There are several reasons. The stock is cheap relative to its history. The company currently trades around 21 times estimated fiscal 2027 earnings per share and below the 10-year average of 23.5 times, according to a recent report from Jefferies analysts. The company is also expected to generate more than $70 billion in free cash flow in both fiscal years 2026 and 2027, meaning the company is not expanding its balance sheet to invest in artificial intelligence. Finally, Jim said our hesitancy to sell comes from our fear that the company will figure out how to solve its AI problems. If management had devoted more compute to Azure and less to Copilot, they could have achieved a better ROI on their investment. Quality control is the best thing Boeing can do to avoid headlines. Unfortunately, there was an increasingly negative update on Tuesday, causing shares to fall some more. The planemaker said it was delaying deliveries of some of its 737 MAX planes after detecting a wiring problem. These delays may affect first quarter deliveries, but the problem will not be long-term. Boeing said the fixes could be completed within a few days and would not affect the current 737 MAX production rate. The fewer mistakes the company makes, the more convinced the market will be that its past problems are behind it, giving investors more confidence that the company can generate $10 billion in free cash flow by 2028. As confidence builds, the market will need to reward the stock with a higher multiple. This last issue is a minor point that doesn’t change our overall opinion of Boeing, but it’s still disappointing to see. Next up: Oracle reports earnings after the bell, and what the company says about capital spending and backlog could influence sentiment about demand for AI computing. AeroVironment also reports results. Before the opening bell on Wednesday, Campbell’s reports earnings and the February Consumer Price Index report is released. The latter will not take into account the recent oil shock but will still be important to the broader inflation picture. (See here for a complete list of stocks in Jim Cramer’s Charitable Trust.) 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