Microsoft (NASDAQ:MSFT) is the world’s most valuable publicly traded company. After a downturn at the end of May, Microsoft stock has continued to climb through June, including a 1.74% gain on Tuesday that set yet another new high and gave the company a $1.04 trillion market cap. With growth of over 30% for 2019, why are investors so bullish on MSFT?
When trading closed on Tuesday, Microsoft stock was at $135.16, up 1.74% for the day. The company has been firing on all cylinders for most of June, climbing back above the $1 trillion market cap it hit for the first time on April 25. That makes MSFT more valuable than other tech giants like Apple (NASDAQ:AAPL) at $913.08 billion and Amazon (NASDAQ:AMZN) at $936.11 billion.
That raises a few questions. For a tech company that’s shut-out of the smartphone market altogether, a non-player in the red-hot smart speaker category and being soundly trounced by the competition in video game console sales, MSFT is doing extraordinarily well these days.
Earnings Anticipation
Microsoft is expected to release its Q4 earnings on July 18, and investors are clearly expecting to hear good news.
The company’s Q3 earnings were better than expected and showed especially strong growth in the company’s Azure cloud computing division, which saw 73% year-over-year revenue growth. Gartner is predicting cloud computing will grow “exponentially” for the next several years, for total global revenue of $331 billion by 2022. MSFT is positioning itself to be a key player in this huge market and investors are anticipating those Q4 results show not just double-digit revenue and earnings growth, but continued acceleration of the company’s cloud computing revenue.
In the aftermath of Microsoft’s Q3 earnings report, MSFT stock rose nearly 4% and the company passed a $1 trillion market valuation for the first time — only the third U.S. company to do so, after Apple and Amazon. The performance of MSFT through June clearly shows an expectation that those Q4 earnings are going to be just as impressive.
Fall Product Launches
While much of the Microsoft news in recent weeks has been focused on the Xbox Project Scarlet, that game console won’t be arriving until 2020. However, there are more product launches expected this fall, and they have potential upside for MSFT stock.
The first is Project xCloud, the streaming gaming service set to take on Stadia from Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google division. Project xCloud leverages all that Azure cloud hardware and it starts public testing this October. Cloud gaming has the potential to be huge. It may not just take a chunk of the current $138 billion global video game industry, it could significantly increase the size (and value) of the video game market by allowing consumers to play on devices like tablets and smartphones without the need for expensive consoles.
Also expected this fall is new Surface hardware, including a new Surface Pro tablet. In Q3, MSFT’s Personal Computing revenue was $10.7 billion and the biggest gains were Surface hardware revenue — up 21%.
Not in the Regulation Spotlight
Finally, unlike virtually every other big tech company, government regulators don’t appear to be taking aim at MSFT.
It hasn’t been singled out for skewing search results, sharing user data, influencing elections or running a monopoly. The company has already gone through antitrust proceedings, but that was several decades ago. With regulators increasingly looking at Apple, Amazon, Facebook (NASDAQ:FB) and Google, MSFT is a relatively safe bet for investors who want to own a piece of a tech giant without a lot of risks.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
