Microsoft Shares Keep Motoring

The stock moves to six-and-a-half-year highs.
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SAN FRANCISCO -- Forget about 52-week highs.

Shares of

Microsoft

(MSFT) - Get Report

explored territory on Thursday they hadn't visited since June 2001.

On a generally down day for the market, however, Microsoft was recently up 30 cents to $37.11. Earlier in the session, shares reached a six-and-a-half-year high of $37.49.

The stock, which at its height in December 1999 commanded nearly $60, got stuck in a $25 ditch with the tech collapse early in the decade.

But with

a strong first-quarter earnings report under its belt, Microsoft has gained traction, rising 21% in a week and earning an extra $55 billion in market cap since Oct. 24.

Microsoft now has a market cap just below $350 billion and a consensus price target of $40, according to Thomson Financial. It still has a long way to go to catch

General Electric's

(GE) - Get Report

market cap: Microsoft would need to trade at $44 and change

or $44.40 to do that.

The stock trades at 21 times the consensus estimate of earnings of $1.80 a share for the year ending in June 2008 and 18 times 2009 earnings.

While the big story in Microsoft's earnings report was growth in Vista and Office 2007 client software and in entertainment software and devices, Microsoft's server division is expected to rev up in early 2008 to deliver growth over the coming two years. Microsoft will bring out three new server software upgrades, while client software keeps churning out profits.

JPMorgan analyst Adam Holt wrote in a note Thursday that he believes consensus estimates for server growth of 17% in 2008 is low. He expects the server upgrades to outperform. In a JPMorgan survey of 55 large businesses, 73% said they expect to migrate to Windows Server 2008. Of those planning to upgrade, 60% will do so by 2009. Microsoft is a noninvestment banking client of JPMorgan.

Holt gave the stock a price-to-earnings-to growth ratio for 2008 of 0.7, based on an expected growth rate of 25% and earnings of $1.92.

William Blair analyst Laura Lederman said in a note Oct. 25 that she views the stock as a hedge against a potentially deteriorating economy.

Even if the economy weakens, Microsoft's new product releases should do better than overall technology industry growth rates, Lederman wrote. William Blair makes a market in Microsoft.