Just six years ago, Microsoft (NASDAQ:MSFT) felt like a tech company that was being left behind. Steve Ballmer was on his way out as CEO, and MSFT was flailing as the success of Apple’s (NASDAQ:AAPL) iPhone and Alphabet’s (NASDAQ:GOOG,NASDAQ:GOOGL) Android threatened the company’s PC-focused business.
MSFT stock ultimately lost about a quarter of its value before Ballmer left. Since Satya Nadella took over as CEO in 2014, Microsoft has turned its business around and Microsoft stock has been on fire, reaching a trillion-dollar market cap. MSFT was largely flat through the summer, but with its Q3 earnings coming in a week, MSFT stock is a solid buy.
From Struggling Tech Giant to a Resurgence
When Satya Nadella became the CEO of Microsoft in early 2014, the company was struggling. It was in no danger of disappearing, but its status was declining along with the popularity of the PC. Just months before Nadella became CEO, the company took a $900 million write down on its disastrous Surface RT tablet. Steve Ballmer’s 2013 acquisition of Nokia’s phone assets had turned into an $8 billion loss by 2016. Windows 8 — the 2012 attempt to bring Windows into the era of tablets and smartphones — was a failure.
The new Microsoft CEO pushed the company to adapt. He flattened the organization, trimming a layer of middle management. Windows 10 is a modern operating system that avoids alienating long-time users, while focusing on security. The company has released versions of Office that are optimized for tablets, and it pushes subscriptions over outright purchases.
Subscription services have also transformed the company’s Xbox gaming division. Its Surface products have evolved into best-in-class devices that embrace current technology trends. It recently released the Surface Pro X tablet which is powered by a custom ARM chip from Qualcomm (NASDAQ:QCOM). The company is also introducing a Surface phone in 2020, the Surface Duo, that runs on Android.
Perhaps the most important move Microsoft has made during Satya Nadella’s tenure has been its focus on cloud computing. The growth of Microsoft’s Azure cloud computing service has been phenomenal, and it’s now number two in the world, trailing only Amazon’s (NASDAQ:AMZN) AWS.
In the last reported quarter, Azure’s sales grew 64% and the Intelligent Cloud division, which includes Azure, generated $11.4 billion of revenue, accounting for a full third of MSFT’s overall top line.
Embracing cloud computing has been a big part of the growth that has powered MSFT stock price higher.
The Satya Nadella Effect on MSFT Stock
CEOs have a tremendous influence over the success of the companies they run, and their stocks usually reflects their performance.
In January 2000, Steve Ballmer took over a Microsoft that was a key player in a PC market that had yet to peak. MSFT stock was trading at $53.91 when he took the reins and when he left on February 4, 2014, a struggling MSFT was trading at $36.35. In the five and a half years since Satya Nadella has been CEO of the company, Microsoft stock has increased in value by 286% and its market cap has broken through the trillion-dollar ceiling.
Microsoft Stock Is a Buy
If you want a high performance tech stock in your portfolio, you should be looking at MSFT stock. You might want to think about pulling the trigger soon, before it reports earnings on Oct. 23.
MSFT stock has consistently climbed for half a decade, and all signs indicate that the trend will continue. Of the 32 analysts polled by CNN Business, 27 have “buy” ratings on Microsoft stock, while three have “outperform” ratings on MSFT stock.
The analysts’ median 12-month target price is $159.00. Even the most bearish target among the group is $151.00, which is still above the $138.30 level at which MSFT stock was trading shortly before 11 AM today. In other words, an investment in Microsoft stock at this point is about as safe as it gets.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.