There must be something in the air because Microsoft Corporation (NASDAQ:MSFT) is looking great again! The previously maligned company scored big on the earnings front, producing a positive surprise of 19% for its fourth quarter of fiscal year 2016. It was the perfect response to an uncharacteristic miss in Q3, which is usually a strong point for MSFT stock. As a result, the MSFT stock price jumped over 5% — the second biggest gain so far this year.
But can they keep the party going? 
Consumer technology hasn’t exactly been the stellar performer of 2016. Historical rival Apple Inc. (NASDAQ:AAPL) has had a bear of time trying to duplicate past successes in the markets.
So far, AAPL is struggling, down 1.4% year-to-date. But MSFT stock — despite being up 1.8% year-to-date — isn’t generating the kind of momentum that gets Wall Street’s blood flowing.
Both companies are underperforming the Technology SPDR (ETF) (NYSEARCA:XLK) of which they are an integral part.
On the bullish end, InvestorPlace Feature Writer Dan Burrows summed it up nicely when he stated that MSFT is “almost kind of a cool company again.” As Burrows notes, sentiment is optimistic for Microsoft’s foray into cloud-based services.
This is a move echoed by the biggest titans in the tech industry, including Cisco Systems, Inc. (NASDAQ:CSCO) and Oracle Corporation (NYSE:ORCL). Returns for both shares are in double-digit territory. By association, that spells great things for the MSFT stock price as well.
However, not all are keen on Microsoft’s comeback. The contrarian perspective is provided by another InvestorPlace contributor, Nicolas Chahine. He noted last month that MSFT stock occasionally lacks the mojo to push forward. He further stated that broad market weakness could threaten the MSFT stock price.
Who’s right in this analyst debate? Although there are great points on both sides of the aisle, the technical posture sides with the bears. However, the argument is very nuanced.
MSFT Stock Faces Headwinds
As Chahine notes, MSFT stock has usually been a proven winner. But in reality, this is a fact that is more and more slipping into the deep crevice of market history.
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In the 1980s and 1990s decades, the average annual return for MSFT stock was 63%. That figure slipped badly in the 2000s, when Microsoft shares only averaged 2%. Fast-forward to the present decade, the performance has improved to nearly 12%. Still, that’s a far cry from the company’s heyday.
But for bullish traders, what is especially worrying is that the highest annual haul in each decade since Microsoft’s initial public offering has steadily declined. In 1987, MSFT stock pulled in 127%.
Four years later, a similar 123% performance fattened investors’ wallets. But the 2000s had a relatively dry spell for monster gains, with the best being a 53% return in 2009. The current decade is worse, with 2013 offering a near-40% profit.
You don’t need to be a quantitative fund analyst to see the bigger problem here. With the passage of time, the upside potential for MSFT is declining quite heavily. Sure, on an adjusted basis, the MSFT stock price is near all-time highs. But the era of crazy returns appears as lively as Windows XP.
It would be comforting to traders if MSFT stock were to make up for its lack of growth potential with frequency of positive returns. But even here, there are signs that everybody must acknowledge. From its IPO year of 1986 through 1999, MSFT stock has only had two — yes, two! — years when investors failed to make money. Those losses averaged a forgettable 5%. Since 2000, however, there have been six down years averaging -24%. In other words, not quite forgettable.
This isn’t to say that everything for Microsoft is “frogs and snails and puppy-dogs’ tails.” The nominal average for the MSFT stock price continues to trek higher, from 22 cents in the late 80s to $49 in the last two years. What I am saying echoes Chahine’s analysis — MSFT is a great company, but it’s liable at times for a correction.
And Burrows is also right. MSFT stock is on cloud line for putting together a strong fiscal showing and abandoning unprofitable ventures. That should make Microsoft shares a mainstay in most people’s portfolios. Just don’t expect to see triple-digit gains anymore. That ticket has long since evaporated.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
