With Microsoft’s (NASDAQ:MSFT) growing dominance in cloud computing and a new version of its Windows computer operating system about to be launched, MSFT stock is a definite buy.
New Windows
Microsoft is releasing a new version of its Windows operating system on June 24. It’s the first new version of the OS since Windows 10 was introduced in 2015. While the company has provided two updates each year to Windows 10, the upcoming launch promises an all-new iteration of the dominant operating system for personal computers around the world.
That’s good news for Microsoft, considering that Windows accounts for 14% of the company’s annual revenues. Code named “Sun Valley,” the new version should have some significant changes.
In addition to a more modern look, with rounded corners coming to components such as the Start menu, the new OS is also expected to include a completely revamped app store that will enable developers to use third-party commerce systems.
Microsoft has been teasing “Windows 11” in a series of videos on YouTube and has scheduled a formal launch event for the new operating system. The ceremony will be held online on June 24.
Coming six months after Microsoft launched a new version of its Xbox video game console, the newest edition of Windows is sure to usher in another new sales cycle for the company.
Cloud Dominance
In the firm’s most recent earnings report, Azure, Microsoft’s cloud computing segment, leapt off the page. The company’s fiscal third-quarter earnings showed that demand for cloud computing remains exceptionally strong. The sales of Azure, which sells internet-based cloud computing services to corporations, jumped 50% year-over-year, matching the gain seen in the previous quarter. Azure continues to perform well despite facing stiff competition from tech giants Amazon (NASDAQ:AMZN) and Alphabet’s (NASDAQ:GOOGL) Google.
Microsoft is now the number two cloud computing provider by market share after Amazon. The company is working to make Azure more appealing and useful to developers, integrating artificial intelligence, as well as live video and text analytics, into the service.
The company has also beefed up the support it provides to Azure users, moving faster to identify and fix any bugs encountered. Microsoft is also developing video games for the cloud
that will be run using Azure. The company has said that it sees the cloud as the next frontier in gaming.
Strong Earnings
Beyond cloud computing, Microsoft’s most recent third-quarter results were very strong. The company’s sales rose 19% year-over-year overall, lifted by the biggest quarterly jump in personal computer shipments in two decades.
Sales in the three months that ended on March 31 rose to $41.7 billion, above the $41.1 billion expected, on average, by Wall Street analysts. The revenue of Microsoft’s personal computing unit rose nearly 20% to $13 billion. Personal computing sales, once a drag on Microsoft’s earnings, have picked up as buyers upgrade the technology they use for school and work. Overall, personal computer shipments rose 32% in the quarter, the category’s highest growth since 2001.
While the ongoing global microchip shortage is limiting Microsoft’s ability to build enough of its new Xbox video game consoles to meet demand, the impact of the semiconductor shortage is expected to be a temporary blip. The sales of Xbox hardware grew 232% YOY in the quarter, driven by demand for the newest version of Xbox’s console. Its net income in its most recent reported quarter came in at $15.5 billion, or $2.03 per share. Analysts, on average, had expected net income of $1.78 per share.
MSFT stock has been trading sideways since the end of April, moving in a range between $252 and $261 per share. But in 2021, the stock is up 17.5%. In the past 52-weeks, the company’s share price has grown 33%. It likely won’t be long before the next leg up. The company was close to becoming only the second going concern after Apple (NASDAQ:AAPL) to achieve a $2 trillion market capitalization before its pullback at the end of April.
Buy And Hold MSFT Stock
Among large cap tech stocks, Microsoft is a keeper. The company is doing extremely well across its business units. With a new Xbox console out and a new version of Windows on the doorstep, Microsoft’s sales should remain strong for the foreseeable future.
The software giant’s growing success in cloud computing is also helping to lift the company to new heights. Investors looking for a big tech stock to buy and hold over the long-term should consider buying Microsoft ‘s shares. While they’ve run far over the past year, analysts expect them to climb further.
The median price target on MSFT stock is $298 per share, suggesting future gains of about 15%. The high estimate on the stock is $340 per share. The low estimate is $270, 5% higher than the stock’s current price of $261. To put it simply, Microsoft stock is a resounding buy.
Disclosure: On the date of publication, Joel Baglole held long positions in MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
