PC Sales Can Buoy Microsoft Stock
About a decade ago, analysts started losing faith in Microsoft Corporation (NASDAQ:MSFT). Why? Because smartphone sales were crushing PC sales. Since Microsoft’s business was built around personal computers (PCs), there was a legitimate fear that MSFT stock would crash and burn.
And, for a while at least, this argument was convincing.
But then something strange happened. Microsoft stock reversed its slide and DOUBLED in less than five years. It was astonishing—a comeback story for the ages.
How did it happen? How did investors wrangle triple-digit gains from a stock that was “destined” for the garbage heap of history? That was the question on my mind as I watched this tale unfold.
Here’s what I’ve come up with: analysts care more about flash than function.
They would rather write about “iPhones” than integrated circuits, for the same reason that Brad Pitt is a movie star and I am not. The iPhone is a more attractive topic; more exciting.
So, in hindsight, MSFT stock was doomed from the minute analysts compared it to Apple Inc. (NASDAQ:AAPL) and AAPL stock.
Their bias towards “flashiness” tilted the playing field, making Apple a shining example of innovation and Microsoft a lumbering dinosaur.
It was unfair, and what’s worse, it was untrue.
MSFT Stock Hits All-Time High as PC Sales Rebound
According to IDC Research, Inc., first-quarter PC shipments in 2017 increased to 60.3 million. (Source: “Traditional PC Market Was Up Slightly, Recording Its First Growth In Five Years as HP Recovered the Top Position, According to IDC, ” IDC Research, Inc., April 11, 2017.)
Not only did this number beat expectations, it was a devastating blow to analysts who believed that PCs belong in a museum.
It runs counter to their narrative.
They used to wave around declining sales as “proof” that PCs were dead. And, to be sure, there were many years that PC sales did indeed decline.
Like a boxer hit with a heavy right hook, PC sales struggled to find their footing during the peak smartphone years.
But last year, PC sales began to stabilize. Now we’re seeing signs of growth.
This is, in part, because smartphones have lost their novelty value. It also has something to do with the amount of money people are willing to spend.
Fewer and fewer people are willing to shell out $800.00 every two years for the latest iPhone, particularly when that phone is identical to their existing one.
Apple and Samsung Electronics Co Ltd (NASDAQ:SSNLF) know this. It’s no coincidence that manufacturers have widened the gap between their product releases from two years to three years.
They need time to make substantial improvements.
But my wider point is simple: PCs are far from dead; they are essential to our work and life.
So let us remember that Microsoft is still one of the largest suppliers of workplace software. It may not be that sexy, but it is still profitable.
Microsoft stock has always been an “enterprise” play.
The company lost that identity for a few years (thanks a lot, Steve Ballmer), but rediscovered it when Satya Nadella became CEO. His commitments to cloud computing have single-handedly pushed MSFT stock to new highs.
Nadella knows that selling to businesses, rather than people, can make things a lot simpler. For one thing, companies tend to be more rational and forward-looking than individuals. They also aren’t as fickle.
So don’t listen to analysts who care more about flash than function. There is a ton of money to be made from companies that do boring things.