As wild as the markets have been, it’s good to know that some things remain constant. After struggling through much of the Steve Ballmer era, Microsoft Corporation (NASDAQ:MSFT) has been a steady hand. For 2016, MSFT stock gave investors almost 17% in returns, not too far off from its 2015 performance of 22%. The solid MSFT dividend continues to reward long-term shareholders. Best of all, fundamental tailwinds suggest brighter days to come.
Undoubtedly, the biggest bullish factor for Microsoft stock is Azure — the tech firm’s cloud computing platform where applications can be built and managed across Microsoft’s vast global networks. According to Goldman Sachs, Azure is the second-ranked vendor in the cloud computing sector.
Combined with its extensive international consumer base, Azure could be a major revenue and earnings boost. Hence, Goldman Sachs upgraded MSFT stock from “neutral” to “buy” in mid-November.
Is MSFT Stock Biting Off more than it Can Chew?
Of course, not everything is so cut and dry. While Microsoft stock has a number of backers, it also has a significant amount of detractors.
Primarily, the foray into the cloud has serious competition, like a “Who’s who” of names you don’t want to go up against. Namely, they are Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN), Oracle Corporation (NYSE:ORCL) and International Business Machines Corp. (NYSE:IBM). The problem with any lucrative industry is that everybody else has the same idea.
Making matters worse, MSFT is behind the curve.
Sure, the tech company can boast of estimated Azure sales of slightly over $2 billion. Many analysts are also loving the triple-digit revenue growth in recent quarters. But that still pales in comparison to Amazon Web Services, which will likely hit nearly $12 billion in sales for 2016. And while it has a shallower growth rate, it has a much larger consumer base than the MSFT cloud platform.
Furthermore, previously celebrated decisions may not provide as big of an impact. For example, the $26.2 billion acquisition of LinkedIn would likely only provide an incremental lift to MSFT stock’s earnings. That’s awfully expensive for such a modest benefit. If it doesn’t turn out well, the company will be forced to turn to other markets. We then return back to the original concern of contested operation.
Technicals Save the Day for Microsoft Stock
While there are a plethora of valid arguments both for and against Microsoft stock, ultimately, it’s the technical performance and the implied profitability that matters. After all, we could talk each other to death about what management will or won’t do. But at the end of the day, it’s about making money — and frankly, MSFT stock is showing nothing but promise.
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Admittedly, Microsoft got clobbered by AMZN — which scored 42% — but really, that’s not an entirely fair comparison.
Then there’s the matter of consistency. In those five years, MSFT has never fallen into negative territory. The same cannot be said for the others. Even the vaunted Amazon tripped up significantly in 2014 before engineering a massive recovery.
Of dubious note is IBM, which had three years in the red from 2013 through the end of 2015. The takeaway here is that Microsoft stock is as stable as your grandmother’s accountant, if not just as personable.
As previously mentioned, investors can enjoy a fairly generous MSFT dividend yield of 2.5%. In comparison, Oracle is at a paltry 1.6%, whereas Amazon and Alphabet currently offer no passive income. IBM is the best of the bunch at 3.3%, but its capital growth potential is a drag. With the MSFT dividend, both returns and yields are very respectable.
Closing Thoughts on MSFT
Like any investment, you have to understand the platform and base your expectations accordingly. This is especially true for MSFT stock. As I’ve argued previously, no one is going to get rich off of this company. Microsoft is well past its “jubilee” phase. Today, there are no surprises. Consumers simply want great products and services with as few hiccups as possible. Recently, they’ve been able to deliver just that.
Let’s not forget that Microsoft stock’s stability is exactly why millions of Americans have it in their retirement portfolio. Without the consistency, the MSFT dividend wouldn’t be what it is.
That’s also why the tech giant doesn’t need to necessarily pioneer new revolutions. It just needs to do a competent job against its rivals. So long as you can accept that premise, Microsoft stock will do you no wrong.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
