Investors have probably read a lot about the cloud lately — maybe too much. Most of the analysis centers on how tech giants like Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) stack up. But getting a little less of the cloud stock hype? Microsoft (NASDAQ:MSFT).
MSFT stock is the other lead player in the space. Along with Google and Amazon, Microsoft helps make up more than half of the cloud market. I’m still bullish on cloud plays broadly speaking–there’s a lot of room for growth as cloud adoption continues to grow. But today, let’s zoom in on Microsoft stock’s prospects.
Microsoft Stock as a Cloud Play
According to a new report from Synergy Research on cloud revenues, Microsoft gained 3 percentage points of market share year-over-year in the second quarter, now claiming 14% of the pie. Amazon is still in the top spot with 34% , while Google captured 6%, the report said. On top of that, spending on cloud infrastructure services jumped 50% year-over-year in Q2.
As I’ve said before, it’s great to bet on a company with a substantial slice of a growing market.
While Microsoft’s gains are nice, I’m not too caught up in who will “win” the cloud battle or be “king” of the cloud. These are false narratives and, to be frank, a distraction for investors. There is never going to be a cloud monopoly. Pick your favorite player — or two or three — and move on.
The momentum of Microsoft both in terms of cloud share and stock price — which are of course related — is hardly news, though. Microsoft stock has posted year-to-date gains of 24% and a climb of 45% over the last 12 months.
And Microsoft stock has tripled over the last four years under CEO Satya Nadella, who declared from day one, as CNBC recently reminded us, that we lived in a cloud-first world.
Additional confirmation for MSFT stock investors came with the company’s most recent earnings report.
While it was the smallest earnings beat for Microsoft in the last year, it was enough to please Wall Street. Earnings tallied $1.13 cents per share vs. expectations of $1.08 per share. Revenue was also strong: $30.1 billion vs. estimates of $29.2 billion.
The Bottom Line on Microsoft Stock
Add it up, and there’s no doubt that Microsoft’s transformation has been impressive.
The old-guard tech company has smoothly reinvented itself as one of the top cloud players and is slowly but surely adding to its slice of that pie. It’s not just backwards-looking numbers that are solid either. Earnings growth of 12% per year is on tap over the next five years — two percentage points better than than the last half-decade — on the back of sales growth of comparable levels.
For the cherry on top of that growth, Microsoft’s old-school roots have it offering investors a dividend yielding nearly 1.7%. But at the end of the day, the cloud is the reason to buy Microsoft stock right now (or, if you’re already long, to hold onto your shares).
Nothing dramatic has changed about the bull case for Microsoft recently, and that’s a good thing. With such a strong chokehold in the cloud market, there’s little to worry about.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
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