Microsoft (NASDAQ:MSFT) stock has been one of the best performing stocks of 2019. As the year comes to a close, Microsoft stock has posted a gain of over 70%. And the stock has been a strong part of the recent rally. MSFT stock price has climbed nearly 15% since the end of October.
For the last decade, the company has been successfully transitioning from a software company to a cloud solutions provider. Microsoft and its Azure platform have a commanding market share in the cloud space.
However, technology companies are frequently “what have you done for me lately?” propositions. In the case of Microsoft, it’s unlikely that the company will realize the same gains they had in 2019. In fact, InvestorPlace contributor Ian Bezek recently made a compelling case that Microsoft may fall victim to the January effect as the calendar turns to 2020.
But that doesn’t mean the company is resting on its laurels. In late 2018, Microsoft teased a new, cloud-based gaming service with the code name xCloud. Essentially, the xCloud will allow gamers to play any game that is available for the Xbox on their smartphone, tablet or other mobile device.
The Cloud Gaming Industry Continues to Grow
According to the Global Cloud Gaming Market 2019 Industry Research Report, the size of the global cloud gaming market was $45 million. That number is expected to explode to $740 million in the next six years. The industry is expected to achieve a CAGR of 41.9% during that time.
Cloud gaming has been around for some time. What makes the xCloud different is its ability to let consumers “cut the cord” in the gaming industry. And just as the “streaming wars” are reshaping the way consumers watch television, the ability to play console games from a mobile device is primed to fundamentally change the gaming industry.
Having a game streaming service is not a new ambition for Microsoft. The company has been planning this move for over five years. An official launch date has not been set. However, there is some speculation that the xCloud will launch concurrently with the company’s new Xbox gaming console. The xCloud is currently in beta testing in select markets.
Microsoft Has a Leg Up in Cloud Gaming
As you may imagine, Microsoft is not alone in the cloud gaming market. But the xCloud gives the company a significant lead over rivals such as Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Amazon is being quiet about its plans. However, when Amazon enters a market, they tend to do very well. For its part, Alphabet is currently testing its “Project Stream” service.
Another reason that Microsoft has an edge in cloud gaming is that it has a vast library of titles already available for its Xbox. According to a study by GlobalWebIndex, mobile gamers spend nearly four hours per day online on their smartphone. And 40% of mobile gamers say that gaming is one of the primary reasons they use the internet. One of the challenges facing the industry, however, is how to provide compelling content that consumers want to purchase.
With that in mind, Microsoft is pledging that all those titles will be available when the xCloud officially launches. The xCloud will also support other Xbox or Xbox 360 games that are available on the Xbox One console. In total, that will be over 3,500 games.
Microsoft Is Also Set to Dominate the Esports Market
Some skeptics question whether streaming games will be able to supplant traditional console gaming, particularly for the high-speed demands of esports.
However, Microsoft is well seeded in the esports community with Cloud9 – a fast growing organization in the world of competitive video gaming. Cloud9 gives gamers access to Microsoft Azure, AI (artificial intelligence) and Computer Vision. This allows gamers to extract specific data that provides valuable insight into their strengths and weaknesses.
So even if you’re not a believer in the growth of cloud gaming on a massive scale, it’s not hard to see a path for Microsoft to benefit from the growth of the overall gaming industry.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
