Is Antitrust Risk a Big Concern With Microsoft Stock?

  • The success of its Azure cloud unit has been a big factor behind Microsoft (MSFT) stock’s winning performance.
  • But now, a recent headline suggests its under scrutiny from regulators over some of this unit’s business practices in Europe.
  • Even if the “worst case scenario” plays out, don’t expect it to derail MSFT stock.
The Microsoft logo outside a building representing MSFT stock.

Source: Asif Islam / Shutterstock.com

As a trillion-dollar company, barely a day goes by without news from or about Microsoft (NASDAQ:MSFT). Some of these developments (for instance, earnings) can have an immediate impact on the MSFT stock price. Other developments can have little immediate impact, but could nonetheless affect its operating and share price performance down the road.

When it comes to news of the software giant being at risk of being in the crosshairs of European regulators, consider this to be a good example of the latter. A large part of Microsoft’s success in recent years is due to the stunning growth of its Azure cloud segment. Yet how it has been growing this segment in Europe may leave it at risk of facing antitrust scrutiny.

So far, this has had minimal impact on its stock price. Even so, is it a sign of trouble ahead? Let’s dive in and find out.

Ticker Company Current Price
MSFT Microsoft $280.95

MSFT Stock and Possible Antitrust Scrutiny

As reported by the Financial Times on April 13, the aggressive tactics being employed by Microsoft to win the “cloud war” between it and its two key rivals, Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN), could result in it ending up under scrutiny by European Union (EU) regulators, due to alleged anti-competitive practices.

Specifically, the way it incentivizes prospective customers of its Azure cloud service by offering them deals on its suite of cloud-based applications like Office 365. While the company hasn’t dealt with too many antitrust issues lately, it’s definitely no stranger to them.

You may remember how, twenty years back, the U.S. Government took the company to court over allegations that it was engaging in monopolistic practices. In the end, the software giant beat the case on appeal. With the E.U. in particular, Microsoft has dealt with several bouts of antitrust scrutiny, some of which has resulted in it paying large regulatory fines.

However, before jumping to conclusions, keep a few things in mind. The E.U.’s investigation is only in the preliminary stages. Even if it does result in another antitrust suit, the end result will likely not have a material impact on MSFT stock.

Little Need for Concern

Microsoft has done very well grabbing a large share of the European market for cloud services. However, that by-itself doesn’t mean that the E.U. will be able to prove this is the product of anticompetitive trade practices.

For example, the circumstances are different than with past antitrust situations. This time, there are several large names (i.e., Alphabet and Amazon) in the space. It’s not simply a case of this tech behemoth, versus a smattering of much smaller competitors. Furthermore, these large rivals also engage in the similar practices that are alleged to be anti-competitive.

Microsoft may be able to successfully defend itself against these claims. Again, that’s assuming what’s playing out now turns into another antitrust suit. Yet even if it loses in the courts, chances are it’s not going to have a serious impact.

Worst case scenario, it may face another fine. Past fines were in the nine-digit range ($100 million to $1 billion). That’s not to say a fine, if one arises, couldn’t be in the billions. Still, as this is a company that generates nearly $20 billion per quarter, a ten-figure fine will sting, but it won’t break the bank.

The Verdict on MSFT Stock

Investors are correct in shrugging off antitrust risk as “no big deal” when it comes to Microsoft. Not only has this not yet evolved into a repeat of its past brushes with E.U. regulators, but, like I said, worst case scenario, it’s not likely to have a material impact on its future results.

Instead of worrying about this, focus on the positives that far outweigh it. Between continued success with its Azure, Office and Windows businesses, plus the potential with its move to expand its presence in gaming and the metaverse, it has a strong chance of delivering strong earnings growth in the years ahead.

Ultimately, if antitrust scrutiny arises, it will not derail MSFT stock. Still beaten down by this year’s market volatility, keep it on your watchlist.

MSFT stock earns a “B” rating in my Portfolio Grader.

On the date of publication, Louis Navellier had long positions in AMZN, GOOG and MSFT. The 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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