Since naming Satya Nadella as its CEO in 2014, Microsoft (NASDAQ:MSFT) has gone from being among the weakest big techs to the strongest of the Cloud Czars. If Americans slow their purchasing, Amazon (NASDAQ:AMZN) might fall. If they prefer Android phones, Apple (NASDAQ:AAPL) could fall. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook (NASDAQ:FB) rely on advertising to pay for their clouds.

MSFT stock, on the other hand, is highly diversified. It doesn’t rely on advertising, but on valuable cloud services its customers charge money for.  This gives it a stable base for future growth. Nadella has engineered a tremendous turnaround.

For its 2018 fiscal year, which ended in June, Microsoft earned $8.8 billion, $1.14-per-share, on revenues of $30.1 billion. Those numbers understate its strength, because Microsoft took a huge loss, $6.3 billion, in the December quarter as it prepared for the Trump tax cut.

MSFT Stock: Better Than It Looks

Microsoft’s price-to-earnings multiple is thus listed at 70, but it’s really in the low 30’s. Flip that unusual loss into its usual profit, and Microsoft would have had 2018 earnings close to $15 billion. By taking charges in December, it gets the full benefit of the cuts going forward.

Under Nadella and CFO Amy Hood, Microsoft has become the most conservative big tech, in the nicest possible meaning of that term. It’s stable, not flashy. It’s a safe choice. It’s what International Business Machines (NYSE:IBM) was back in the 1960s.

I got into Microsoft in 2015. The stock has more than doubled since then. I’ve also gotten dividends worth 12% of my original investment, and now get $1.68-per-year on an original investment of $52-per-share.

I don’t worry about “the trend” with Microsoft. Don’t trade it. Just buy it and leave it alone.

The Next Phase

What is most interesting about Microsoft today is that it is finally poised to make another run at the consumer market that has eluded it throughout this century.

Microsoft tried to dominate the early internet. The MS in MSNBC? That’s not a reference to female anchors. It’s Microsoft. The company scaled back its online ambitions and lost its edge in browsers. It missed the mobile revolution entirely. It even trailed Sony (NYSE:SNE) in gaming.

That may finally be turning around. Gaming is now a $10 billion business for Microsoft. Windows is now a “services platform,” rather than an operating system. Successful pieces of the Microsoft ecosystem are going onto Android phones and smart thermostats.

Microsoft has learned it needs big allies to take on its rivals. So to take on Amazon it has picked up Walmart (NYSE:WMT), with analytics and front-of-the-store solutions as well. That streaming service Walmart is said to be working on will also likely be powered by the Microsoft Azure cloud.

Speaking of that cloud. Azure is now on every continent, building scaled data centers in places like South Africa, Brazil and central India.  It has greater geographic diversity than Amazon.

The Bottom Line

Microsoft has diverse revenue streams, a solid corporate customer base, and more direct cloud revenue than any of its major rivals. It is now less vulnerable to market shocks than the other Cloud Czars, something I never believed I would write.

I don’t expect MSFT stock to zoom to $1 trillion. But it can hold its $822 billion market cap, and with a forward-price-to-earnings multiple of just 23 it’s still affordable. It’s a grown-up tech company that knows what it’s about, and that has room to grow. What else can you ask for?

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and MSFT.

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