On the Surface, Microsoft Corporation (MSFT) Stock Looks Like a Buy

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A few weeks have passed since Microsoft Corporation (NASDAQ:MSFT) delivered solid third-quarter earnings. They weren’t spectacular by any means, but they were enough for Microsoft stock to hit a 52-week and all-time high of $69.71.

On the Surface, Microsoft Corporation (MSFT) Stock Looks Like a Buy

MSFT appears to be running on all cylinders at the moment, but if Microsoft stock is to keep climbing, it has got to deliver the unexpected to justify a higher valuation from investors.

One key area of weakness for the company is its Surface line of portable computers which haven’t had a refresh in some time. As a result, Surface revenues dropped 26% in the third quarter to $831 million.

The Fix Is In for MSFT Stock

However, even in the areas where it’s not doing well, Microsoft seems to have the solutions to fix these problems. Take the Surface. It’s a perfect example. According to InvestorPlace contributor Brad Moon, Microsoft unveiled the Surface Laptop running Windows 10 S May 2 in New York.

“[Windows 10 S] is what MSFT describes as a ‘streamlined’ version of Windows,” says Moon. “It can only run apps downloaded through the Windows Store, integrates with OneDrive for cloud storage and supports Office 365 — with the full Office suite coming to the Microsoft Store. Microsoft Edge is the default browser. It’s secure [and] runs on low-end hardware.”

The Windows 10 S operating system is part of Microsoft’s solution to reverse sliding sales on both its Surface portable computers and its Windows and Office software. Windows 10 S will run on OEM machines priced as low as $189, which will enable its hardware partners to go up against Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) Chromebooks line.

The new Surface, says Moon, will retail at $999 and goes on sale in June. The price is too high for the educational market, but it will allow it go after Apple Inc.’s (NASDAQ:AAPL) MacBook Pro line of portable computers.

CEO Satya Nadella’s taking the fight to Apple. It will be interesting to see if it can retake some market share forfeited to Tim Cook and the rest of the team in Cupertino.

Microsoft Moving Faster

Microsoft is definitely a different company than we’re used to. It’s moving faster these days and investors appear willing to pay up for the privilege of owning Microsoft stock.

I recently discussed artificial intelligence and the part it was playing in pushing Microsoft stock higher. The company is so fixated by AI that it just named Eric Horvitz Microsoft’s head of research. Horvitz got a Ph.D. in artificial intelligence at Stanford; he has spent the past 25 years using that knowledge to change the way we interact with machines.

Microsoft’s commercial cloud, which includes artificial intelligence and Office 365, hit an annualized run rate of $15.2 billion in the third quarter. Putting Horvitz in the driver’s seat when it comes to research is going to speed up Microsoft’s ability to deliver extraordinary products down the road, which in turn will drive revenues and earnings higher.

Microsoft Azure, the company’s public cloud platform, saw revenues increase 93% in the third quarter. Unfortunately, it doesn’t provide revenue details for Azure just yet, but the increase is good news just the same.

Maersk is using Azure to digitally transform its supply chain management and global trade. The intelligent services in Azure deliver up-to-the-minute insights on carrier performance and equipment usage with real-time data visualization and advanced analytics, enabling them to trim costs and create new revenue streams,” Microsoft’s CEO said during its Q3 2017 conference call. “For a company that ships 17 million containers annually, the ability to react quickly can mean the difference of tens of millions of dollars to the bottom line.”

Nadella went on to discuss how other industries are using Azure to strengthen their businesses. Products and services that make and save people money tend to do well over the long haul. I’d expect Microsoft will break out the revenue numbers for Azure sooner rather than later given the buy-in by global businesses.

Bottom Line — Microsoft Stock

Five years ago, I wouldn’t have been caught dead writing about Microsoft. Now, with all the interesting things it’s doing revolving around the internet, I actually enjoy learning about its various businesses.

As InvestorPlace contributor Chris Lau recently said, Microsoft is not expensive at 21 times forward earnings. I would agree.

At the end of 2016, I wrote about Microsoft stock going to $80 by the end of the year. Over four months into the year, I don’t think there’s any doubt.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/surface-microsoft-corporation-msft-stock-buy/.

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