In today’s market of rich valuations and erratic trading, it can be difficult to come by solid, long-term investments. That’s especially true when you’re talking about the tech space, but Microsoft (NASDAQ:MSFT) is one such stock that investors shouldn’t pass up.
MSFT stock has already risen nearly 30% so far this year, but don’t let that put you off — the tech giant has further to climb in the years ahead.
Growth Ahead for MSFT Stock
Of the 32 analysts covering MSFT stock, 27 have given the firm a buy rating, while just one recommends selling. While you should never follow analyst advice blindly, the fact that 90% of analysts have given Microsoft stock a buy or overweight rating should at least give you reason to consider adding the tech stock to your portfolio.
The big reason that many analysts are bullish on Microsoft stock is the fact that the firm’s cloud business, Azure, is becoming increasingly larger and more profitable. A few years ago, many were skeptical about Microsoft’s ability to change with the times and become a cloud competitor. However, what skeptics didn’t take into account was the fact that Microsoft is already a huge part of many business’ operations with its Office suite and other business solutions. That has given the firm the foot-in-the-door it needed to build out a compelling cloud offering.
Shifting to cloud computing is relatively painless for current Microsoft customers, a huge selling point for Azure. As long as management is able to keep Azure’s offerings in key growth areas like the internet of things and artificial intelligence up-to-date, MSFT’s cloud arm looks poised to continue adding new customers.
On top of its current potential in the business world, MSFT’s Azure also has the potential to win a massive contract with the U.S. Department of Defense to power the Joint Enterprise Defense Infrastructure (JEDI) program. Project JEDI is the federal government’s proposed solution to connect government employees and military personnel across the globe. This project would allow for more efficient decision making. While the DOD appears to have narrowed its choice of providers down to just Microsoft and Amazon (NASDAQ:AMZN), it’s worth keeping in mind that as with anything government-related, a series of probes, questions regarding legality and general disagreement about how to proceed are likely to tie JEDI up for months to come.
The Perfect Setup
While most agree that Microsoft can’t dine out on its Office suite forever, the firm has done well switching over to subscriptions. MSFT still holds a monopoly on productivity software and that position at the top of the food chain brings in a lot of cash for the firm each year. Microsoft has wisely been using that money to build out Azure in hopes of eventually building the cloud provider into as large a part of the firm’s business as Windows and Microsoft Office have been.
MSFT stock faced some backlash when it announced plans to add an additional fee in order for its Microsoft SQL Server and Windows Server licenses to be used on third-party clouds. Starting in October, the company will require its customers to pay for “license mobility” in order to keep using its software systems on another cloud infrastructure. However, according to Deutsche Bank’s Karl Keirstead the “license mobility” could be a boon for Microsoft stock. He argued that as long as Microsoft is careful not to be too restrictive, the added fee could make licensing much simpler and entice more clients to use Azure over smaller rivals.
The Bottom Line on MSFT
Any way you slice it, Microsoft stock looks to be in a great position right now. The company’s future growth plans look solid. Its Azure cloud computing arm appears to have a long growth runway ahead. MSFT has been leveraging its dominance in the software space and it’s paying off. Unlike some of its peers, MSFT isn’t teetering on the edge of a turnaround. The company appears to have pivoted with the times and is already on an upswing. It doesn’t have a particularly juicy dividend with a yield of 1.3%, but it’s safe and reliable.
As of this writing Laura Hoy was long AMZN.