If you look at a multiple-year chart of Microsoft (NASDAQ:MSFT) stock, you’ll see a very pretty geometric shape known as a parabola. More accurately, you’ll only see the part of the parabola that goes vertically upwards, as the other side of the parabola (the one that goes down) is completely missing.
That’s all fine and good, but does it make sense to buy Microsoft stock at this lofty price? If you want reasons I can give them to you, but the most compelling reason might be Microsoft’s progress in cloud computing; this alone could justify ignoring the sky-high MSFT stock price and taking a position anyway.
Impressive Numbers for MSFT Stock
If you’re looking for a company that will pose a threat in the cloud race, you won’t find anything much better than Microsoft. In the first fiscal quarter of 2020, Microsoft’s Intelligent Cloud revenue advanced by 27%, with the Azure division expanding by an astonishing 59%. That’s quite an achievement considering the company’s fourth-quarter cloud segment growth was 19% and its fiscal year 2019 cloud division growth was 21%.
You can feast your eyes on those encouraging stats, but it’s more important to appreciate how pivotal cloud computing will be in the coming years. Just as Microsoft was a desktop-computing pioneer in the 1980s and 1990s, the company’s reminding stakeholders than an old dog can do new tricks as it continues to rival Amazon (NASDAQ:AMZN) in the cloud-computing space.
How big is Microsoft’s footprint in this market? Put it this way: the company’s Azure platform is currently being used in 54 global regions, while Amazon’s AWS could-computing platform is only being used in 25. Again, investors only need to look at the numbers and the choice is crystal clear.
The Cloud War Gets Serious and Personal
The characters in the mob film The Godfather talked about how you’re supposed to separate your business from your personal matters, but Amazon founder Jeff Bezos might have forgotten that lesson. At least, he seems to be taking it personally that the Pentagon awarded Microsoft a coveted $10 billion cloud computing contract.
The fact is, the Pentagon needed a provider with hybrid-cloud experience, and Microsoft trumps Amazon in that respect. Microsoft’s Azure platform allows for on-premise servers as well as pure cloud computing; during the Pentagon’s contract negotiations, surely the government took into consideration that Microsoft has a sizable head start in the hybrid-cloud space.
This head start has clearly paid off, as 95% of Fortune 500 companies are currently using the Azure platform. The flexibility of the hybrid approach is indubitably the differentiator here: as one Fortune 500 client observed, “Microsoft didn’t ask us to bend to their vision of a cloud.”
As you may have already heard, there have been suggestions that the Pentagon’s choosing Microsoft was politically motivated. There’s no need to explore that here, but we can say with confidence that the story’s not likely over. I fully expect Jeff Bezos to strike back against the government, Microsoft, and any other perceived antagonist.
Whether Microsoft won the Pentagon contract fair and square is immaterial for the time being, though; what matters to investors is that the company’s miles ahead and will likely stay that way for the foreseeable future.
The Takeaway on Microsoft Stock
Your best strategy as an investor is to avoid the flashy headlines and the accusations and just stick to the facts. In this case, the facts are evident: MSFT stock had a strong year and the cloud had something to do with that. I expect another exciting and prosperous year to await Microsoft shareholders — the share price is high, but the cloud can take it even higher.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
