Since the start of 2021 MSFT stock stock is up 9%. Shares of AAPL are down 7.3%. At this rate, the 15% gap in their market caps could be bridged by September.
Microsoft’s decision to commit to the cloud and make Satya Nadella its CEO in 2014 continues to pay off. The company is continuing to grab cloud market share, even from Amazon (NASDAQ:AMZN). The software maker continues to grow revenue at 14%, at scale, with income growing even faster.
If you think the government will stop it, a recent $21.9 billion contract with the Army to develop augmented reality headsets for the troops says no.
Right now, there is no better investment you can make than Microsoft stock.
Microsoft Stock Beat the Tech Wreck
The correction in tech stocks that began in mid-February was barely a blip to Microsoft. Shares ended this holiday-shortened week at $242.35 a share. That’s less that 1% off the all-time high of $244 achieved in February. That means the price-to-earnings multiple is at 36.1, the once-generous annual dividend of $2.24 yields less than 1%.
Yet Wall Street continues to shout “buy”. TipRanks shows 23 analysts following Microsoft. All say to buy the shares. Their consensus one-year price target is $279, an 15.1% gain from where it is now.
I picked up some shares, almost on a lark, soon after Nadella was promoted. My gain is over 300%, and I have almost 10 “free” shares by reinvesting my dividends.
Strength to Strength
While Congress talks about breaking up Cloud Czars like Amazon, Alphabet (NASDAQ:GOOGL) and Facebook (NASDAQ:FB), politicians are silent on Microsoft. Nadella reversed the company’s early internet march into media and the consumer internet. Younger readers may not even know that the MS in MSNBC refers to Microsoft.
Yet Microsoft is still a big consumer brand. The pending purchase of Discord, an in-game chat app, for $10 billion may finally put the Sony (NYSE:SNE) Playstation in the Microsoft Xbox’ rear-view mirror. Its LinkedIn social network, bought in 2016 for $26.2 billion, gives it a social network without Facebook’s controversy, because the platform’s focus is on business.
Microsoft’s Army contract isn’t a fluke. It has become the leader in “mixed reality.” After years of investment, Microsoft Mesh is now ready to change how entertainment is made and business is conducted. It’s a long-term project with a long-term payoff, the kind of thing that justifies Microsoft’s enormous size.
As the economy moves toward big infrastructure investment, a Microsoft executive is heading the steering committee of the building industry’s leading tech forum. While other companies are fighting over whether to return workers to offices, Microsoft data is leading it to a hybrid approach it can teach businesses, maintaining their competitiveness and productivity.
The Bottom Line
In 1980 computers were still products, and computer companies were expected to deliver solutions. Today we know hardware is software, that computing is central to everything, and that it’s a shared responsibility between vendor and client.
Microsoft today is what IBM was then, although today’s computing world is nothing like what it was. The only question is whether Microsoft might make the mistake IBM made, putting the company in the hands of marketers, prioritizing short-term dividends over long-term investment.
Right now, there seems little chance of that.
At the time of publication, Dana Blankenhorn directly owned shares in AAPL, MSFT, FB and AMZN.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack newsletter.