Microsoft Corporation (NASDAQ:MSFT) has a history in the stock market that I break down into three periods. The first period was when Bill Gates was CEO. We know the amazing strides the company made and how well MSFT stock performed under Gates’ guidance.
“Phase 2” began with Steve Ballmer taking over. Ballmer did not do well by the company, with the company going nowhere for the 14 years he ran the company.
Three years ago, the company entered “Phase 3”, with Satya Nadella taking over. Since then, Microsoft stock has done rather well, but more importantly, the company seems to have found a vision for the future.
The Next Frontier for MSFT Stock?
Nadella is focusing on the cloud and mobile. That strategy is finally starting to take off. Part of the success here is based on subscription services. Office commercial products revenue growth has seen the following over the past four quarters: 0%, 5%, 5% and 5%, respectively. Cloud Services revenue growth for commercial grew 7%, 9%, 8% and 7%.
But it’s the consumer side that is really exploding for Microsoft. Office consumer product revenue growth was 3%, 19%, 8% and 22%. Cloud services for consumers saw revenue growth of 6%, 18%, 8% and 21%. That’s on the heels of Office 365 consumer subscribers growing from 20.6 million in Q2 of FY16 to 24.9 million in Q2 of FY17 — that’s over 20% growth!
Finally! MSFT stock has been responding to the fact that the company is moving away from the PC business, which has been in slow decline as the world goes mobile.
Meanwhile, Gartner Technology Research reports that Microsoft has a 28.4% share of cloud computing platform usage, with 37% held by Amazon.com, Inc. (NASDAQ:AMZN). Microsoft is also trying to take on Slack by introducing Skype Teams, and will roll the cost into the Office 365 product, making it a value-add to compete with the $7 to $15 monthly fee of Slack.
I have to say, I thought Microsoft’s purchase of LinkedIn was beyond stupid. I just don’t see LinkedIn as anything other than a resumé billboard, yet somehow enough people are paying up for this service. I personally don’t get it, but hey, it should generate several billion dollars in annual free cash flow to add to MSFT’s coffers.
Meanwhile, Microsoft is playing around in several new areas that could prove to be very lucrative. Cybersecurity is already important, and will only get more important as time goes on, and systems get more and more complex. The area is ripe for innovation, and with all the cash MSFT has it can both develop internal solutions and acquire other companies.
Bottom Line on Microsoft Stock
It may not make sense initially, but AI is also going to be a big part of the company’s strategy and possibly Microsoft stock. For starters, AI is going to have a lot of commercial and consumer applications. Those sci-fi movies and Iron Man’s Jarvis are not really that far off, and the company seems to have both the visionary CEO and the capital to R&D the heck out of this.
That will spin MSFT stock back into cybersecurity, by the way. Imagine foreign nations invading our systems with bots and crawlers and nano-spies. AI and machine learning will be able to see the attacks, and auto-create ways of battling invaders by having free rein to self-write new code.
This also spins into stuff like driverless cars. It isn’t just the software needed to drive the cars, but security to make sure they aren’t hacked into.
Meanwhile, financials are fantastic and Microsoft stock keeps appreciating. In addition, the company is judiciously growing its dividend. I think it’s difficult not to look at MSFT stock as a candidate for a long-term diversified portfolio.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he did not hold a position in any of the aforementioned securities. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
