While Microsoft Corporation (NASDAQ:MSFT) is like most other companies in that it offers several different kinds of revenue-bearing products and services, also like most other companies, only a small number of them will be seen as “load bearing” by the market.
Indeed, the future of Microsoft stock could very well boil down to three key segments, one of which isn’t actually driving any healthy revenue yet.
So what? The so-what for current and would-be shareholders is, if you can put your finger on the pulse of its most important businesses, you can determine how investors are collectively feeling about the company.
To that end, here are the three areas you need to watch most closely for Microsoft going forward.
There’s an 800-pound gorilla in the cloud computing room. It’s called Amazon.com, Inc. (NASDAQ:AMZN), or more specifically, Amazon Web Services. As of the end of last year, AWS boasted 62% of the world’s cloud computing hosting business.
It’s curious, however. A year earlier, Amazon Web Services owned 68% of the cloud computing market. It’s also noteworthy that Microsoft’s cloud revenue during the fourth quarter was greater than Amazon’s, and growing at a clip of 56%, grew faster than Amazon’s cloud revenue.
How is Microsoft beating Amazon at the game Amazon practically invented? It’s building the precise product businesses want and need.
Case in point: The organization just unveiled a cloud platform specifically built from the ground up to meet the nuanced needs of the healthcare sector. Considering most hospital employees and healthcare administrators are already familiar with its other platforms, it’s an easy sell to a market that’s undergoing an IT paradigm shift.
Technically speaking, Microsoft’s cloud-based Office 365 office-productivity suite is part of the company’s cloud computing arm. In light of something CEO Satya Nadella said of the software-as-a-service product, though, it arguably deserves its own mention as a key pillar for Microsoft stock.
It was at the Morgan Stanley Technology, Media and Telecom conference just a few days ago that Nadella commented, “The growth opportunity for what is Office 365 is a lot bigger than anything we’ve achieved, even with our high penetration in the client-server world.”
It’s a bold statement, considering some of the stunningly big things Microsoft has already achieved. It’s not an unbelievable idea, though.
Despite free alternatives including from the likes of Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), Microsoft has made Office 365 a must-have for many organizations by integrating it seamlessly with so many other tools and platforms the company offers.
Last but not least, while rival IBM (NYSE:IBM) has a high-profile artificial intelligence platform called Watson, and Alphabet is getting in on the rise of AI as well, don’t dismiss Microsoft as a budding AI giant.
It’s been buying its way into the business, with Canada’s Maluuba being one of the most recent deals that brings some new AI capabilities in-house.
In the meantime, the company’s Brainwave technology essentially accelerates artificial intelligence functions by offloading much of the calculation load of AI to FPGAs (field-programmable gate arrays) rather than dumping that work on a computer processor.
That’s hardly the end of the story, though. A week ago, Microsoft and Xiaomu announced they would be collaborating on artificial intelligence developments.
The organizations don’t entirely seem to know (or at least they didn’t say) where the partnership is going. It is clear from all of the deal-making, however, that AI is a priority for the company. It’s worth noting for Microsoft stock owners simply because the company’s arguably better positioned to sell artificial intelligence services to the entities most likely to need them.
Bottom Line for Microsoft Stock
Again, these aren’t the only things Nadella is working on. Servers and operating systems and home-grown laptops are still on the table, and they all still work together to help develop a much bigger web that catches more and more customers.
Investors — as a group — only have so much capacity to pay attention, and generally speaking, they can only focus on about three things at a time. They’ll gravitate to the seemingly most important three, which for Microsoft are the three areas laid out above. If you get a firm grip on those three pillars, you’ll have a good idea of what to expect from Microsoft stock.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.