The Upside for Microsoft Corporation
What should investors expect from Microsoft Corporation (NASDAQ:MSFT)? For a long time, the answer was simple: nothing. Microsoft stock seemed to be a shadow of its former self when Steve Ballmer took over from Bill Gates. But there’s fresh life in MSFT stock, which yield-hungry investors should take note of.
For one thing, Microsoft’s new CEO is doing a fantastic job. His name is Satya Nadella and, over the last two years, I’ve watched him steer this wayward ship back on course. His leadership has led to a 54% increase in MSFT stock, and that’s just the appetizer. Nadella is warming up the entrée as we speak.
Nadella’s success is simple. Instead of focusing on the whimsical consumer market, Microsoft is returning to its roots as a workplace-driven supplier. “Word,” “Excel,” and “Powerpoint;” these were all software programs created to help people accomplish work, not fun. Nadella realized that Microsoft stock doesn’t have to be the most exciting investment on the market. It just needs to generate profits.
Consumers fall in and out of love with new technology all the time. Judging an investment on how exciting you find it is the worst form of valuation malpractice. The sizzle only lasts a few seconds, but then real life picks up.
“Think about a world without Excel,” said Nadella at a conference earlier this year. “People couldn’t make sense of numbers before, and now everybody can.” (Source: “Satya Nadella cannot imagine the world without this one Microsoft product,”Business Insider, June 30, 2016.)
This type of thinking is driving a resurgence in Microsoft stock. It is what made the company into a corporate behemoth during the Bill Gates years, and it is what will guarantee another 50 years of growth in MSFT stock. Here’s why.
Data Center Growth Buoys MSFT stock
With the rise of the Internet came a flood of data. Every click, tweet, and post is composed of data, meaning it makes its way from one computer to others elsewhere in the world. In between these computers are servers, which store and/or process this data. We call them data centers.
Data centers are Microsoft’s ticket to the future.
In the past, companies kept their data centers in the office. They’d find some cold, dark room in the basement and store a handful of servers there. But it was costly and inefficient. Now these companies simply outsource their server needs to tech giants like Microsoft. It’s known as “cloud computing.”
New or old, all companies are looking to streamline their IT and make sense of the data they collect. That’s where MSFT stock can make its fortune, and Nadella is the perfect guy for the job. Before becoming CEO, he was the head of Microsoft’s cloud computing division. He has made it a company priority since taking the helm, because he understands that housing and clearing data is a growing business. The need for more data centers is never-ending.
Think about it: the amount of online data is constantly growing because the Internet is becoming a bigger and bigger part of our lives. But companies aren’t experts at data analysis any more than regular people are experts at math.
Excel made math easy for the average person. Microsoft is replicating that process by building data analytics tools for its cloud computing products. It sounds boring, but boring is where the profits are! Demand for servers is almost guaranteed to rise, so I see Microsoft stock riding this trend to triple-digits gains.
Just look at the growth of online shopping:
Brick-and-mortar retailers have been squeezed by the success of e-commerce firms like Amazon.com, Inc. (NASDAQ:AMZN), which is why many companies are shifting their focus to online customers. Even Wal-Mart Stores, Inc. (NYSE:WMT), the 800-pound gorilla of retail, is being threatened by the rise of e-commerce sales.
This mass migration is terrible for minimum-wage workers, but it is great for MSFT stock. Why, you ask? Simple: all this new data will lead to greater demand for server space, thus lifting MSFT stock along the way. Increased demand for data centers is a rising tide that will lift all (except the smallest) boats in the cloud computing industry. So when I see charts like the one below, I smile about Microsoft stock.
It doesn’t matter what metric I look up; they all scream that Internet usage is skyrocketing. Since data centers have to multiply alongside growth in the Internet, Microsoft stock is virtually guaranteed to keep growing.
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