Good News for MSFT Stock
There must have been a party at the Microsoft Corporation (NASDAQ:MSFT) headquarters last week, because the company received two amazing pieces of news. Both of these events suggest nothing but blue skies ahead for Microsoft stock (MSFT stock).
First off, the European Union (EU) green-lit Microsoft’s $26.2-billion acquisition of LinkedIn Corp (NYSE:LNKD). Since EU approval was the final hurdle for this particular merger, Microsoft is now in a position to move forward. The deal officially closed last Thursday. (Source: “Microsoft just finalized its deal for LinkedIn — here’s what happens next,” Business Insider, December 8, 2016.)
Having LinkedIn’s gigantic data pile is going to help Microsoft make its products smarter and more useful for clients. Even unrelated parts of the company, like the data center business, could be made more efficient by using LinkedIn’s data. It’s like having a stockpile of natural resources.
But there was a second piece of news, which could buffet MSFT stock.
Magic Leap, Inc.—a startup which was trying to challenge Microsoft stock—was buried in scandal this week. The $4.5-billion dollar startup grossly exaggerated its technology while raising money, says Reed Albergotti from The Information. Now it is struggling to meet expectations. (Source: “The Reality Behind Magic Leap,” The Information, December 8, 2016.)
This development was unexpected and incredible for anyone who’s bullish on MSFT stock. The company was ready for a knock-down, drag-out fight with Magic Leap, but this scandal has left the young startup hobbled and weak. Microsoft has an enormous upper hand at this point.
But let’s back up a little. What tech are Microsoft and Magic Leap competing over?
To put it simply: virtual reality (VR). Like Facebook Inc (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOG), Microsoft is breaking into the virtual reality game. However, the Redmond, Washington-based company is taking a slightly different approach—it is building an augmented reality (AR) device.
Here’s the difference: virtual reality devices close off your vision. After strapping them on, you are immersed in the virtual world. Even if you turn left or right, all you can see is the video or game you’re plugged into. Augmented reality headsets, on the other hand, are see-through.
The AR devices make it seem like there are holograms around you, but only you can see them. You can still see your surroundings through the transparent glass, but the special lenses trick your eyes into believing the holograms are three-dimensional.
It’s like bringing the digital world out into the real one. Both Microsoft and Magic Leap invested heavily into this tech, which is why they were expected to duke it out in the coming years.
Neither device is out yet, but we’ve had glimpses of their spectacular demo videos. Now we’ve learned something shocking about Magic Leap’s demo tape: It wasn’t real. According to The Information, they used a Hollywood visual effects team to make their videos.
Moreover, the prototypes were far more advanced than what customers will be able to buy.
Magic Leap raised $1.4 billion from the likes of Google (owned by Alphabet Inc), Alibaba Group Holding Ltd (NYSE:BABA), and Andreessen Horowitz, largely based on the strength of those videos. People are feeling pretty ticked off with the company right now.
In other words, Microsoft’s main competitor is entering the augmented reality race with a broken leg. The odds of Microsoft winning this market just improved by a heck of a lot, so it’s no surprise that MSFT stock is trading at record highs. This company is poised for spectacular growth in 2017.