Microsoft (NASDAQ:MSFT) stock closed March at less than $1 from where it opened January.
Although a down market — spurred on by Friday’s jobs report — has Microsoft stock down about 1.5% on April 3, it remains about the only thing working. Even the dividend, 51 cents per share, looks payable. Its yield of 1.3% is close to that of the 30-year U.S. Treasury bond.
How is this possible?
Simple. The cloud. Not just the cloud, but cloud applications. These are the vital services that let millions work from home, that keep the economy alive. And these are the services seriously helping Microsoft stock right now.
Making a Commitment
Satya Nadella didn’t set out to become the hero of a global pandemic in 2014. His appointment as CEO of Microsoft was controversial, as was his commitment to the cloud.
This was neither cheap nor easy. Committing to cloud meant putting $1 billion into capital spending each quarter, then raising it steadily. The company’s capital budget in 2010 was under $2 billion. In 2019 it was nearly $14 billion.
Companies that a decade ago were larger, such as AT&T (NYSE:T) and International Business Machines (NYSE:IBM), found this to be too much. Instead they gave shareholders dividends. Microsoft, on the other hand, paid out just 44 cents per share a decade ago.
Nadella also committed to doing virtually all the company’s business online, at a time when that was still controversial. He also committed to doing other software companies’ online business, competing directly with Amazon (NASDAQ:AMZN).
At the time the idea seemed ludicrous. But Microsoft was also selling platform tools and applications. Microsoft has since become the most profitable cloud in the world.
Microsoft Stock and the Pandemic
Not everything has gone perfectly for Microsoft during the pandemic.
Teams, its collaboration system, is being outshone by Zoom Video (NASDAQ:ZM). Microsoft’s new scrolling news bar looks like something out of the 1990s. Microsoft has pulled away from investments in facial recognition. Business revenue, including Surface laptops, is falling because of the pandemic.
But generally, Microsoft has gotten good reviews and increased business. The stock gained 7% just on March 30. Usage of the Azure cloud has grown almost 800%. Microsoft now has cloud data centers on every continent, including Africa, where Amazon has yet to build.
New Opportunities
Microsoft stock’s performance during the panic has given it new opportunities.
Microsoft is now rolling out Teams as a consumer product, as Office is rebranded as Microsoft 365. The experience of working and living with its systems is becoming seamless.
In March Microsoft acquired Affirmed Networks, for a price estimated at $1.4 billion. This let Microsoft introduce Azure Edge Zones for carriers, to take advantage of 5G.
Microsoft is rolling out automated chatbots and virus trackers, not just to fight the human pandemic but the ills that hit networks and software. Microsoft now has the cash to decisively beat long-time rival Sony (NYSE:SNE) in gaming. It is buying game developers as that industry moves to the cloud. Microsoft is also teaming up with Plaid to support payments within its Excel spreadsheet.
The Bottom Line on Microsoft Stock
I picked up some shares of Microsoft almost as a lark several years ago, when they were at $50. It’s now the best performer in my portfolio, having more than tripled in price. The dividend now yields 4% on that initial investment.
Very few companies get multiple legends as CEO. Bill Gates’ first successor, Steve Ballmer, got the company out of antitrust jail but did nothing for the stock.
Nadella, on the other hand, is the kind of CEO they write books about. Gates quietly left his position on the board last month, and he left the company in the best possible hands.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT and AMZN.
