Investors with long-term time horizons would be smart to jump on the Microsoft (NASDAQ:MSFT) bandwagon. Why? MSFT stock is testing all-time highs.
MSFT stock is now sitting at $212 per share, just shy of its recent all-time high of $214.67. The stock has been galloping lately. Remember, at the beginning of June, shares were just above $180.
Driven by a host of new products and dominance in the software and cloud computing spaces, MSFT stock climbed 11.1% in June. It’s up 56% in the past 12 months and has risen almost 380% over the past five years. With multiple business lines that are both profitable and dominant, MSFT stock looks to have plenty of upside potential. Several analysts forecast Microsoft will reach $250 over the next year.
But is it too late to get in? No. Investors likely haven’t missed the boat, but they should climb aboard before the stock gets any more expensive.
A $2 Trillion Market Capitalization for MSFT Stock?
Microsoft currently has a $1.6 trillion market capitalization. And, according to Wells Fargo Securities, the company has a good shot at being the first to cross the $2 trillion market cap threshold. In doing so, it would beat other technology giants such as Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) to that milestone.
The main driver of Microsoft’s growth is the company’s Azure cloud computing business. Azure is fiercely competing with Amazon Web Services (AWS) and Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Cloud service. Yet Microsoft seems to be sprinting ahead in cloud computing. In its most recent quarter, Microsoft reported that its Azure revenues grew by 59% year-over-year. That makes it the fastest-growing company with cloud computing offerings.
And there’s no reason to expect that momentum to slow. Novel coronavirus lockdowns continue to drive demand for cloud storage and services.
Many of Microsoft’s other business lines have also benefited from the current work-from-home movement. Its Productivity and Business Processes segment has seen sales increases thanks to Office and Microsoft Dynamics. Microsoft has also been aggressively updating its Teams platform that enables organizations to work collaboratively while in disparate, remote locations. The Redmond, Washington-based company just unveiled a new “Together Mode” for Teams that places participants in a virtual amphitheater setting.
Initial reviews of the “Together Mode” feature have been positive. And Microsoft is clearly aiming to become the preferred virtual meeting platform and take market share away from competitors such as Zoom (NASDAQ:ZM) and Slack Technologies (NYSE:WORK). Microsoft also owns Skype.
Retail Stores and Video Games
Like all dominant companies, Microsoft is constantly changing and innovating. The company’s research and development department employs 47,000 people. So, it should come as no surprise that Microsoft has been nimble and responsive to Covid-19. In addition to upgrading Teams and pushing sales of its personal computing products, Microsoft also announced at the end of June that it is permanently closing all 83 of its retail store locations. These stores have never been as popular as rival Apple’s stores.
The retail closures will result in a pre-tax charge of $450 million, or 5 cents per share. Microsoft will record this in the quarter ended June 30. However, long term, the store closures will enable Microsoft to further invest in its digital storefronts on Microsoft.com, as well as stores available through Xbox and Windows. Combined, these digital stores reach more than 1.2 billion people every month in 190 markets.
Additionally, Microsoft continues to be a dominant player in console gaming. The latest console — the Xbox Series X — launches in time for this year’s holiday sales season. The Xbox Series X will be backward compatible with games, controllers and other features of the Xbox One, which should help to encourage customers to make the switch and ensure a smooth transition to the new console.
Microsoft is also looking to secure a strong line-up of game titles for its newest console. It’s reportedly looking to buy video game maker Warner Brothers Interactive Entertainment. The $4 billion deal would provide Microsoft with a host of popular game properties, including Harry Potter, Batman, Mortal Kombat and LEGO. Microsoft has previously made acquisitions, such as Minecraft developer Mojang, to gain access to their properties.
Regardless of whether Microsoft is able to purchase the game maker, the Xbox Series X should help drive sales well into 2021.
The Bottom Line on MSFT Stock
Microsoft is a leading technology company for a reason. It’s actively involved in many of the biggest growth areas of tech right now — from cloud computing and virtual meetings to artificial intelligence and gaming. Responsive and adaptable, Microsoft is always quick to capitalize on a new opportunity and take on its competitors. Such tactics should ensure that MSFT stock continues to rise higher in the foreseeable future.
Accordingly, investors should view MSFT stock as a safe and reliable long-term holding — one that is capable of providing consistent gains over an extended period of time.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia. As of this writing, Joel Baglole held shares of MSFT and AAPL.