Why the Microsoft Corporation (MSFT) Stock Comeback Is Just Beginning

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Microsoft Corporation (NASDAQ:MSFT) has gotten some of its moxie back. Granted, the growth is nowhere near the pace of the glory years of the 1980s and 1990s. But then again, the shareholder returns have been impressive. During the last 5 years, Microsoft stock has logged a gain of nearly 100%. By comparison, International Business Machines Corp. (NYSE:IBM) has a loss of 13% and Qualcomm, Inc. (NASDAQ:QCOM) lost about 11%.

Why the Microsoft Corporation (MSFT) Stock Comeback Is Just Beginning

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But it does seem like the opportunity may be mostly gone for Microsoft stock. Let’s face it, the valuation is far from cheap.

Consider that the price-to-earnings ratio is about 30X and MSFT stock is near an all-time high. Yet, I think there remains more upside. The fact is that Microsoft stock is a great way to play the cloud megatrend, which is likely to see growth for many years.

Why MSFT Stock Is a Good Bet

This technology has many benefits that are just too critical to ignore, such as the ability for real-time analytics, better integration with other systems and seamless updates. The business model is also fairly predictable, since it is based on ongoing subscriptions.

According to Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) Cloud Chief Diane Greene, only about 5% of the world’s data is in the cloud. She thinks that ultimately the market could hit a stunning $1 trillion.

But there is another important driver: In today’s world, just about all companies need a strong digital presence to be successful. Simply put, customers have come to expect that they should go to a site or app – and quickly get what they want.

So to provide this service, companies will need to rely on cloud services. And for now, the two main players include MSFT and Amazon.com, Inc. (NASDAQ:AMZN).

But Microsoft stock may be in the best position. The company has a trusted global brand, a massive global infrastructure, a network of millions of developers as well as thousands of partners and a wide assortment of enterprise software products. Oh, and there is a massive customer base that uses productivity apps like Office.

Such advantages are extremely tough to replicate.

Bottom Line on Microsoft Stock

But what’s also important for MSFT stock is that the company has essentially gone all-in with its cloud efforts, such as integrating features among its products and engaging in aggressive M&A.

For example, the company has acquired MileIQ, Xamarin and SwiftKey to bolster its mobile footprint. And more recently, MSFT has been acquiring companies in the Artificial Intelligence space. Some examples include Genee (AI-powered scheduling) and Maluuba (natural language processing).

Yet the $27 billion purchase for LinkedIn will perhaps be the most significant for Microsoft stock. With the deal, MSFT gets the global leader in professional online networks — there are over 467 million members — that should allow for powerful synergies with existing assets. Already, the company has added LinkedIn services with the Dynamics CRM platform.

So yes, it should be no surprise that the quarterly reports from MSFT reflect lots of momentum. In the latest quarter, the company’s Azure service, which is similar to Amazon Web Services, saw revenues spike by 93%. In fact, the annual run-rate for the total cloud segment is at over $14 billion.

It’s true that the cloud market is getting increasingly competitive, as seen with the efforts of companies like IBM, Oracle Corporation (NYSE:ORCL) and Hewlett Packard Enterprise Co (NYSE:HPE), but they are all really playing catchup and they do not have the breadth of services that MSFT has. In other words, when it comes to playing the cloud, Microsoft stock remains a great option for investors.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including Taxes 2017: Saving A BundleFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/microsoft-corporation-msft-stock-comeback-just-beginning/.

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