It’s Crystal Clear Why Microsoft Is No.1 Again


Microsoft (NASDAQ:MSFT) stock once again represents the world’s most valuable company, ahead of Apple (NASDAQ:AAPL).

Image of corporate building with Microsoft (MSFT) logo above the entrance.
Source: NYCStock /

Some charge it’s also the most overvalued one. It’s not.

At its current price of $336, Microsoft has a market cap of $2.5 trillion. More important, investors are paying 37.5x earnings for MSFT stock and taking a once-generous dividend that now yields 0.74%. In conventional terms, that’s overvalued.

Why are people still buying? Microsoft is delivering enormous highly-profitable growth. GAAP earnings rose 45% year-over-year in the latest quarter. Revenue was up 19%. That’s net income of nearly $15.5 billion on revenue of $41.7 billion. For those scoring at home, 37.6% of revenue became net income.

Growth is supposed to slow as companies get bigger.

No one told Microsoft’s Azure cloud.

Landlord of the Clouds

Clouds are uniquely profitable because they cap a company’s costs while making its software more valuable. Software runs today’s world. Microsoft makes the operating system and tool set people rely on most. Thus, Microsoft runs the world. It’s not complicated.

But this didn’t seem obvious when Satya Nadella became CEO in 2014. It still doesn’t seem obvious to those who confuse companies like Netflix (NASDAQ:NFLX) and Twitter (NASDAQ:TWTR) with clouds.

The difference is this. Netflix and Twitter rent cloud capacity, so as they grow their costs rise. Microsoft is buying and building capacity, so while its costs grow revenues also rise, including revenue from renting that capacity. It’s the difference between being a landlord and a tenant.

The Practical Metaverse

MSFT stock also runs rings around rivals from a strategic perspective.

Take the metaverse, which makes William Gibson’s concept of cyberspace real, people seeming to interact within a computer system. The artists formerly known as Facebook were laughed at when they announced this, changing the company name to Meta Platforms (NASDAQ:FB) and turning the CEO into a cartoon.

Microsoft is doing the same thing, only quietly, step by step, and in a businesslike manner. It’s working with Nvidia (NASDAQ:NVDA), whose fast graphics chips make things like the metaverse possible.

It’s putting this capability into its Teams product, emphasizing collaboration and communication. The idea is to make working from home feel like working together in a physical office. By solving the work from home dilemma, on software already used by 250 million people, Microsoft will get metaverse technology into the mainstream as fast as it can be rolled out.

The Paid Cloud

This illustrates a second difference between Microsoft and the other cloud companies.

The Microsoft cloud is a paid cloud. It supports open source software, which is downloaded free. But the open source contract also requires improvements be donated back. Microsoft’s customers are also developers, growing its software stack.

Everything else, you pay for. It’s worth the price, but you pay. By contrast, Meta (and to a great extent Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) consists mainly of free services. Apple, meanwhile, gets most of its money from selling devices, Amazon (NASDAQ:AMZN) from selling physical products.

The Bottom Line on MSFT Stock

The only force that can slow MSFT stock right now is government. But it’s not in government’s self-interest to do so.

That’s because Microsoft’s software makes government more efficient. The percentage of government income, at every level, going into bureaucracy keeps falling. Going after Microsoft on antitrust grounds, as the U.S. did two decades ago, would put further gains at risk.

Besides, Microsoft’s cloud is essential to competition. Other large software firms like Adobe (NASDAQ:ADBE) depend upon it. This is a global dependence, not a national one.

It’s Microsoft’s world now. We just live in it.

On the date of publication, Dana Blankenhorn held long positions in AMZN, AAPL, NVDA, and MSFT. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for Halloween he has a collection of COVID-19 stories at the Amazon Kindle store. Write him at or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.

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