When it comes to growth stocks, we often look to the tech sector. However, some investors are a little nervous about big technology and social media giants these days. Most of the FAANG stocks are under increasing scrutiny. The prospect of government actions over monopolistic behavior is looming. One way to invest in a big tech company while minimizing risk is to go with Microsoft (NASDAQ:MSFT). It didn’t post spectacular gains in 2020, but MSFT stock still managed 40% for the year. Few investors would complain about that kind of return.
More importantly, Microsoft has already had its monopoly scare and survived intact. The company is not in regulator sights, effectively removing that wildcard from the equation.
Big Tech Risks Regulation
Big technology companies have been in the headlines for the past several years but for reasons that make investors anxious. Yes, many have achieved incredible growth. But some have done so by snapping up competing companies before they become a threat.
Social media companies have become platforms for news and essential communication, which makes them rife for targeting by bad actors. App stores have become huge moneymakers, but tech companies that take a big cut of sales are beginning to generate a backlash.
This all began to come to a head in 2020. The Federal Trade Commission (FTC) is taking action against what it sees as illegal monopolization. The Department of Justice (DOJ) is actively investigating antitrust allegations related to how app stores are run. In the European Union, the drumbeat is growing to break up big tech companies.
It’s hard to say what may come of all this. It could be anything from tech companies being forced to divest themselves of divisions, to large fines, to increased regulation. The uncertainty has many investors spooked — which is completely understandable.
Microsoft has been largely absent from these conversations. Why? The biggest reason is that Microsoft was the poster child for these very same actions two decades ago. In 2000, the company was found to be a monopoly and ordered to be split up. After a series of appeals, moves to satisfy regulators and the growth of competing tech companies that diluted Microsoft’s influence, the company survived intact. But MSFT stock took a beating and then stagnated for over a decade.
Today, however, Microsoft is back.
Over the past five years, MSFT stock has posted 318% growth. And unlike in the 1990s, Microsoft has largely avoided situations that would attract regulators.
Long-Term Moneymakers and High Profile Products
Microsoft growth continues to be powered by legacy products like Windows and Office. The company transitioned Office from packaged software to a subscription model with cloud-based versions and support for mobile platforms. As a result, the Office cash cow continues, decades after it was first released. But now it is largely recurring revenue. In its last quarter, Microsoft reported Office 365 commercial revenue up 21% year-over-year (YoY), while Office consumer products and cloud revenue was up 13%.
In addition, Microsoft has a healthy cloud-computing business. During that last quarter, intelligent cloud revenue hit $13 billion, with Azure revenue growth up 48% YoY.
Microsoft is also expecting to see a big boost from two key products through 2021. Teams had a breakout year in 2020 thanks to the pandemic forcing many companies to have staff work from home. MSFT is on the attack, rapidly increasing Teams functionality to take on competitors in the remote collaboration, video conferencing and voice call markets. At this year’s Consumer Electronics Show, computer monitors with a dedicated Teams button made an appearance.
The Series X/S next generation game consoles will also figure prominently in Microsoft’s future. Gaming is increasingly important to the company’s bottom line. The November 2020 launch was described by Microsoft as “the most successful debut in our history,” with more of the new consoles sold than in any previous generation.
2021 will be the first full year of Xbox Series X/S sales. That is expected to pump money into Microsoft’s coffers as gamers line up to buy the latest and greatest new consoles, along with games and services like Xbox Live.
Bottom Line on MSFT Stock
The bottom line on MSFT stock is that it’s a great option if you want to invest in a high-growth technology giant with long-term staying power. Especially if you’re concerned about the current regulatory scrutiny so many of these companies find themselves under.
On the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.
