Microsoft Corporation: The Most Overlooked Reason to Be Bullish on MSFT Stock

MSFT stockThis Could Be Massive for Microsoft Stock

For the most part, Microsoft Corporation (NASDAQ:MSFT) stock has been known as a software company. Many of us were first introduced to Microsoft through its “Windows” operating system and “Office” productivity suite. But in recent years, it has built a solid hardware segment that could become a catalyst for Microsoft stock in the future.

Obviously, I’m not talking the Nokia business, which resulted in billions of dollars being written off of the company’s books. Instead, I’m looking at the company’s attempt at capturing one of the most explosive markets in tech—detachable tablets.

Overall, tablet sales are declining. Even the mighty “iPad” has been experiencing a year-over-year decline in shipped units. But not all tablets are created equal. In particular, the detachable tablet market has been booming. International Data Corporation (IDC) predicted that detachable tablets would grow from eight percent of the tablet market in 2015 to 30% in 2020. (Source: “Detachable Tablets Set to Grow from 8% of the Tablet Market in 2015 to 30% in 2020, According to IDC,” International Data Corporation, March 8, 2016.)

Microsoft launched its first two-in-one tablet, the Microsoft “Surface,” back in 2012 and consumers loved it. Since then, the company has released subsequent versions with the latest being the “Surface Pro 4,” introduced in October of 2015.

As you would expect, once the success story got around, competitors joined the game. Apple Inc. (NASDAQ:AAPL) has released its own detachable tablet—the “iPad Pro.” While reception was great, it was no “iPhone.” It was reported last month that in the U.K., unit sales of Microsoft’s Surface Pro 4 have more than doubled those of the iPad Pro. (Source: “Surface Pro 4 vs iPad Pro Sales: Microsoft Outsells Apple in UK,” Android Origin, May 29, 2016.)

Personally, I believe that detachable tablets will play a big role in the future of personal computing. Of course, laptops will still be around, but no matter how thin and light laptops become, some consumers will still find them too cumbersome. Regular tablets, on the other hand, do not have enough functionality to replace laptops. That’s why detachable tablets—with touchscreens and detachable keyboards—are already gaining market share.

Who would be the biggest winner in this booming industry? My prediction is Microsoft. The reason is simple: the company has the best operating system for detachable tablets.

You see, most detachable tablets on the market today are powered by one of the three main operating systems: Apple’s “iOS,” Google’s “Android,” or Microsoft’s Windows. The main factor is that both iOS and Android are mobile operating systems to start with; they have just been altered to meet the needs of detachable tablet users. When it comes to being a mobile workstation, though, neither iOS nor Android can even come close to Microsoft’s operating system.

Microsoft is not using some beefed up mobile operating system to power its tablet. The Surface lineup started with the full-fledged “Windows 8” and is now equipped with “Windows 10.” When attached to a keyboard, the user feels like they’re simply using a laptop. And since Windows has been the most widely used computer operating system for decades, a detachable tablet powered by Windows would be a natural extension for those who are shopping in this category for versatility and power.

At the end of the day, what Microsoft stock investors really want to know is how this industry could boost its financials. Well, using IDC’s numbers, despite the overall declining trend in the global tablet market, detachable tablets are expected to grow from 16.6 million shipments in 2015 to 63.8 million in 2020.

Also, IDC forecasted that by 2020, Windows will have a 54.5% market share in the worldwide detachable tablet market. This means nearly 34 million detachable tablets will be shipped with Windows in 2020. Not all Windows tablets are made by Microsoft. But if the company manages to keep its existing presence in this industry, the overall surge in worldwide shipments could bring billions of dollars of additional revenue to Microsoft.

The Bottom Line on MSFT Stock

As is the case with any company, not every project is going to work out at Microsoft. Fortunately, the company seems to have hit the jackpot with its line of Surface detachable tablets. And that’s good news for Microsoft stock investors.