Don’t Overlook the Boring Legacy Businesses Behind Microsoft Stock

After 15 years of relatively flat performance, Microsoft (NASDAQ:MSFT) shares kicked into serious growth mode in 2013. Over the past nine years, MSFT stock has delivered a return of over 960%. The company has a market capitalization of over $2.2 trillion. That’s despite a pullback that has hit many tech sector stocks and shaved 11% off MSFT so far this year.

The Microsoft logo outside a building representing MSFT stock.

Source: Asif Islam / Shutterstock.com

Despite its stumble to start 2022, Microsoft stock remains a top pick. It earns a “B” rating in Portfolio Grader.

Investment analysts polled by the Wall Street Journal have MSFT rated as a consensus “Buy.” Among the 43 analysts there’s not a single naysayer suggesting you sell your shares. Their average price target of $369.83 has 25% upside.

While there has been considerable focus on Microsoft’s “newer” lines of business, like cloud computing, driving that growth, here’s a reminder that the company’s ancient lines of business, like its Office productivity suite and Windows, are also continuing to perform extremely well.

MSFT Stock: Don’t Forget Office and Windows

When looking at Microsoft, many investors have been fixated on lines of business that are seen as being the future. These are non-traditional areas where the company is experiencing considerable success. In its latest quarter, Microsoft reported Azure and other cloud services revenue was up 46% year-over-year.

Meanwhile, the company continues to make headlines for its planned acquisition of gaming giant Activision Blizzard (NASDAQ:ATVI). That purchase stands to boost the company’s standing in everything from Xbox gaming to the metaverse. It’s seen as a big future driver of MSFT stock growth.

I can understand the excitement. However, from my perspective, the key to making an investment in MSFT stock isn’t just the promise of cloud computing, gaming and the metaverse. It’s the money-minting reliability of the stuff Microsoft has been doing since day one: Office and Windows. These are like insurance in case one of Microsoft’s big bets fails to pay off, but they also continue to contribute in a big way to the company’s success.

Looking at those Q2 earnings that MSFT reported in January, Productivity and Business Process revenue was up 19% YoY to $15.9 billion. Much of that revenue was generated by consumer and commercial versions of Office products. That’s 31% of the company’s total revenue. The More Personal Computing division booked $17.5 billion in revenue. That’s an increase of 15% YoY, and 34% of the company’s total revenue. A big part of that was Windows and Windows commercial products. Windows OEM revenue (fees paid by PC makers to install Windows on their computers) was up 25%.

In short, boring old “legacy” businesses like Office and Windows were still accounting for a huge chunk of Microsoft’s revenue. And that revenue continues to grow — it’s not fading away.

Bottom Line on MSFT Stock

When considering an investment in MSFT stock, absolutely you should look to the future. The company’s Azure cloud services and Xbox gaming division — and their combined ties to the metaverse — offer the promise of continued long-term growth.

However, what makes MSFT stock so attractive is that even if the metaverse fails to reach its potential, even if Surface hardware doesn’t sell as well as hoped, even if Xbox gaming popularity slows and even if Bing never manages to grow its search engine market share, Microsoft will still be a strong company. Because, despite the advances made by competitors, Windows still has nearly 75% global marketshare. 

That means the revenue (and profit) generated by Windows, Office and related products and services will continue to pour in, as it has been doing for decades. Having that huge business in its back pocket is a key reason why an investment in Microsoft is hardly a gamble.

There’s a strong probability that the company’s investments in cloud computing and other technologies will pay off handsomely. MSFT stock’s trajectory over the past nine years shows that the company’s strategy has been paying off. But even if things go sideways for a while, the reliable cash cows of Windows and Office will still be there. 

With MSFT stock currently down 11% so far in 2022, there’s an opening to pick up shares on the dip with a high likelihood they are going to deliver impressive long-term growth. And little risk that a bad bet on technology will see them lose value.

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.

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