Microsoft (NASDAQ:MSFT) has now been the most valuable company in the world for several months, and Microsoft stock has had a pretty good 2019.
It opened for trade June 26 at $134 per share, a market cap of $1.02 trillion. Even with a fall of 3% on June 25 it’s still up 30% on the year. Second place Amazon.Com (NASDAQ:AMZN) is worth $925 billion, Apple (NASDAQ:AAPL) is third at $900 billion.
What these companies and fourth place Alphabet (NASDAQ:GOOGL) have in common is that they are “Cloud Czars.” They have spent the last decade investing in global networks of cloud computing data centers, whose immense storage and processing power now dominate a host of markets from software to media.
What the Czars, and Facebook (NASDAQ:FB) (worth “just” $552 billion), which must be included in their number, have in common is that they’re all under attack from politicians who want them broken up.
All, that is, except Microsoft.
But for how long?
Microsoft Stock and Gaming
Microsoft’s recent moves in gaming illustrate just how effectively it has been ducking and dodging the monopoly charge.
On the surface Microsoft’s partnership with Sony (NYSE:SNE) in “cloud gaming” should make the ears of antitrust police prick up. After all, the two companies sold more than half of all gaming consoles last year. The industry’s third player, Nintendo, is also reportedly interested in streaming games on Microsoft’s Azure cloud.
But the new partners are selling this as a defensive move. Google is launching a service called Stadia, they explain. Amazon has the market for watching gamers sewn up with its Twitch service. Apple is rolling out controllers that turn its devices into game consoles. The biggest player in the market may be privately-owned Steam.
Antitrust and Microsoft Stock
Microsoft could take over the gaming market by buying Steam owner Valve, which is based near it in Redmond, Washington.
It won’t.
That’s because it learned a harsh lesson from its own antitrust battle, which started in 1998. and finally ended in 2011. The cost went well beyond the fines. The case brought a host of lawyers and analysts into Microsoft’s headquarters whose job it was to say no. It killed innovation for a decade.
Since its case was ended, Microsoft has carefully avoided dominating markets, even when it could. It didn’t commit to the cloud until Amazon and Google had a five-year head start. It partners with cloud application vendors like Adobe (NASDAQ:ADBE), even as the multiples paid for those stocks dwarfs its own 30 times earnings.
Microsoft aims to make its xCloud a Netflix (NASDAQ:NFLX) for gamers, but the antitrust police aren’t knocking on Netflix’ door. That’s because it faces a host of competitors, many of them better capitalized and some of which, like Amazon’s Twitch and Google’s YouTube, are owned by other Cloud Czars.
The Bottom Line on Microsoft Stock
The question is how long can this last?
So far critics have mainly talked up the idea of splitting the Czars based on applications or keeping things like Amazon’s store brands from dominating markets.
No one has yet offered the obvious solution, which would be to separate the clouds from the services that run on them, making the clouds regulated utilities like the Bell System.
This wouldn’t just be a disaster for Microsoft stock but for the market as well. Phone companies like AT&T (NYSE:T) and cable infrastructure owners like Comcast (NASDAQ:CMCSA) had every opportunity to invest in clouds a decade ago. They chose to hand out dividends instead.
The cloud went to those with the courage to say yes, in a game whose ante started at $1 billion per quarter. Cloud infrastructure spending could reach $210 billion this year.
That precedent may be Microsoft’s best line of defense when the antitrust police come knocking again, as they inevitably will.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write to him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT, AMZN and AAPL.
