Microsoft Corporation: Why MSFT Stock Is Breaking New Highs

Microsoft Corporation MSFT Stock Continues to Outperform

Shares of Microsoft Corporation (NASDAQ:MSFT) keep breaking through previous highs as the company signs deal upon deal. It’s no surprise that MSFT stock is up 14.15% this year.

For instance, Microsoft just signed a $927.0-million contract with the Department of Defense (DoD). The DoD wants “Windows 10” installed on all four million of its computers within the next 12 months.

It’s not the sexiest deal in the world, but that shouldn’t bother serious investors. The bottom line is that Microsoft just scored an extra billion dollars worth of revenue for doing simple IT work. No matter how you slice it, that has to be good for MSFT stock.

Then again, this contract shouldn’t come as a surprise. It is a direct reflection of the new and improved MSFT stock, but most investors haven’t noticed how remarkably different the company is from a decade ago.

Microsoft circa 2016 barely resembles the incoherent wreck that it was under ex-CEO (and current Los Angeles Clippers owner) Steve Ballmer. That Microsoft was old and decrepit. It ignored the rise of smartphones and cloud services. Then it was made anew by current CEO Satya Nadella.

Here’s a quick breakdown of their respective legacies. Steve Ballmer was responsible for:

  1. The disastrous Nokia acquisition. It’s an objective fact that buying Nokia was roughly the same as flushing shareholder money down the toilet.
  2. “Windows 8.” If you don’t remember the calamitous Windows 8, count yourself lucky. It was a complete failure and was widely disparaged by experts.
  3. Internal turf wars. Ballmer’s tenure was characterized by tons of infighting. Departments sabotaged each other and championed their own projects. The company ethos was sales versus everyone else.

The list goes on, but you get the picture. Steve Ballmer is the same guy who laughed at the “iPhone.” He literally said, “There’s no chance that the iPhone is going to get any significant market share. No chance.” (Source: “Steve Ballmer’s Biggest Mistakes As CEO Of Microsoft,” Business Insider, August 27, 2013.)

He sat atop the Microsoft empire from January 2000 to February 2014, and during that time, MSFT stock fell 22%. Bill Gates’s brainchild—once a monument to technological progress—had fallen into decay. As a result, Ballmer handed the reins over to Satya Nadella.

Less than three years later, MSFT stock was on the mend. The share price surged 65% since the executive shuffle, and Nadella’s list of accomplishments is growing longer every day. Here’s a brief look at some of his biggest wins:

  1. “Azure” is a leader in cloud computing. Once again, Nadella’s accomplishments sound boring, but they are cash cows. Cloud computing is a high-margin business with lots of growth potential. That basically means it is fuel for MSFT stock.
  2. The end of silos at Microsoft. To prevent the sort of infighting that took place under Ballmer, Nadella broke down the divisions inside his company. He reorganized departments by purpose rather than product, which led to greater cooperation. It may not sound like much, but it really helped bring a cohesive vision to Microsoft’s products.
  3. A beautiful piece of hardware. Have you ever tried the “Microsoft Surface?” It is a thing of beauty, which probably explains why Surface sales are growing faster than any other laptop or tablet on the market. Yes, that includes the “iPad” and “Macbook.”

All in all, it’s astoundingly clear what’s been driving MSFT stock during the last three years: its CEO, Satya Nadella. As long as he remains at the helm of MSFT stock, I’m optimistic.