More Upside for MSFT Stock?
When investors look at Microsoft Corporation (NASDAQ:MSFT) stock, many are still thinking it’s the same company that Bill Gates built and ex-CEO Steve Ballmer may have destroyed if he was not replaced by current CEO Satya Nadella. MSFT stock is not the same as it was—an aging, old technology play making operating systems for a dying PC market. The new Microsoft stock deserves respect as an innovative technology company looking to achieve dominance in the cloud computing, mobile, and productivity fields.
Even after Microsoft’s strategic $26.2-billion takeover bid of LinkedIn Corp (NYSE:LNKD) in June, MSFT stock got very little respect as traders drove the share price down below $50.00.
In my view, the sell-off was unwarranted. MSFT stock has since clawed its way back to the $57.00 level, surpassing its 52-week high.
Chart courtesy of www.StockCharts.com
The reality with the LinkedIn deal was that Microsoft had to pay the high premium if it wanted the company, as there was speculation cloud play salesforce.com, inc. (NYSE:CRM) was also aggressively pursuing LinkedIn.
Nadella has done a wonderful job during his tenure so far. In fact, Ballmer should be thanking Nadella for the money he has made since passing the helm on.
My Bullish Case for MSFT Stock
Microsoft has shown it doesn’t want to be just another technology company. Like Apple Inc (NASDAQ:AAPL) in the smartphone business, Microsoft wants to be the top dog in cloud, mobile, and everything productivity-related.
While Microsoft continues to boost its revenue from non-PC related businesses, Nadella is hard at work looking at innovative markets.
For instance, Microsoft will build an “Azure” cloud-based platform for Boeing Co (NYSE:BA) to provide its offering of aviation analytic tools used by more than 300 global airlines. The deal with Boeing demonstrates how Microsoft is using its expertise in business productivity and the cloud to become one of the top vendors of cloud applications.
The recent fiscal fourth quarter reflected Microsoft’s shift away from the slowing PC business to productivity applications and the cloud. Productivity and business processes revenue accounted for $7.0 billion of the company’s net revenue, while the area of intelligent cloud generated $6.7 billion in revenue. In total, these two segments accounted for approximately 61% of total revenue, which is positive and reflects the success of Microsoft to transition into a new-age technology company.
Revenue from the PC segment continues to be significant, hovering around 39% of revenue. Even in this area, Microsoft is making progress with its “Surface” tablet, which showed growth of nine percent in the quarter. (Source: “Earnings Release FY16 Q4,” Microsoft Investor Relations, July 19, 2016.)
The Bottom Line on MSFT Stock
Now, Microsoft is likely not going to reach its lofty goal of having its “Windows 10” operating system (OS) installed on one billion devices any time soon. However, the main point to be made here is that the OS is still highly relevant and used by hundreds of millions worldwide.
If you’re a non-believer in Microsoft before, now would probably be a good time to consider switching your allegiance and trusting what Nadella is accomplishing. It’s time to be bullish on MSFT stock.