Tech stocks are not the easiest to trade and valuations can sometimes get sketchy. But there is one company that has a proven track record of success and can continue to create shareholder value in the foreseeable future—Microsoft Corporation (NASDAQ:MSFT) stock.
Tech stocks had a choppy ride last year. The stock market took a nosedive in August 2015, recovered quite a bit, and then crashed again after entering 2016. How did MSFT stock do during this time? Despite several market downturns, Microsoft stock climbed more than 16% in the past 12 months.
Going forward, there are quite a few catalysts that can give MSFT stock a further boost. Let’s take a look.
MSFT Stock: Growing Cloud Computing Service
Cloud computing is one of fastest-growing areas in tech today and Microsoft is enjoying that growth. In particular, Microsoft’s enterprise-grade cloud computing platform, “Azure,” is experiencing tremendous success.
In the most recent quarter, revenue from Microsoft Azure surged 140% year-over-year on a constant currency basis. Revenue from Azure premium services nearly tripled year-over-year. Right now, more than one-third of the Fortune 500 companies are using Microsoft’s “Enterprise Mobility Service.” (Source: “Microsoft Cloud Strength Highlights Second Quarter Results,” Microsoft Corporation, January 28, 2016.)
Microsoft’s success in cloud computing is partly due to its ingenious strategy. The company is pursing a mix of on-premise, private cloud, and public cloud services called the “Intelligent Cloud.”
You see, corporations have used on-premise solutions for too long and it’s unlikely that they would go directly from on-premise deployments to cloud solutions. By offering a hybrid cloud solution, Microsoft was able to expand its cloud services in the enterprise world by offering companies gradual steps.
Other projects could boost earnings, too.
Today, almost every tech giant has some sort of a moonshot project. It could be drones that deliver wireless Internet with lasers, “Internet of Things” devices, or driverless cars. Luckily, Microsoft has its moonshots, too.
One of Microsoft’s moonshot projects is self-driving cars. But instead of building an entire vehicle from the ground up, Microsoft is partnering with carmaker Volvo.
The companies announced last November that the main focus of the partnership is to develop autonomous cars, to use data from connected cars to create new services, and to modernize the car buying process. (Source: “Volvo Cars to Develop Next Generation Automotive Technologies with Microsoft,” Volvo Cars, November 20, 2015.)
Microsoft is also deeply involved in the augmented reality (AR) business. After putting on Microsoft’s “HoloLens” headset, users can create and shape holograms with gestures. The experience looks absolutely amazing. And according to Goldman Sachs, the virtual and augmented reality market could become an $80.0-billion industry by 2025. (Source: “Virtual Reality Could Become an $80 Billion Industry: Goldman,” CNBC, January 14, 2016.)
As is the case for all the other companies, moonshot projects will incur operating losses for Microsoft. But future industries like augmented reality and autonomous cars have enormous potential. Having developments in those areas is an appealing feature in the eyes of potential MSFT stock investors.
The Bottom Line on MSFT Stock
Let’s not forget that Microsoft’s core business is still sound. Its newest operating system, “Windows 10,” is now on more than 200 million monthly active devices. (Source: “Windows 10 Now Active on Over 200 Million Devices,” Windows Blog, January 4, 2016.) Moreover, its new productivity software, “Office 365,” has become the most popular choice for enterprises: Office 365 is in use at four out of five Fortune 500 companies. (Source: “Microsoft Earnings Conference Call,” Microsoft Corporation, last accessed February 25, 2016.)
All told, it’s clear that Microsoft is not only performing well today, but it also has growth drivers that can work well into the future. Investors who don’t want to miss the next tech boom should take a serious look at MSFT stock.