Two Tailwinds for MSFT Stock
If you think Microsoft Corporation (NASDAQ:MSFT) is a dusty relic from a bygone era, I have news for you: you’re wrong. Sorry to say it so bluntly, but MSFT stock is one of the best and most interesting plays on the stock market.
The company has formed some incredible partnerships with the likes of Facebook Inc and General Electric Company. Both of these deals suggest that Microsoft is reverting to its original identity as a corporate service and software provider.
This isn’t the same company that bought Nokia’s cellphone business in an idiotic attempt to compete with Apple and Samsung. It has a different CEO and a different set of priorities. Microsoft is now under the stewardship of Satya Nadella and he has completely turned the company around.
Judging by Nadella’s decisions over the last 18 months, I’d say this is the start of a long run for MSFT stock—a very long run. The share price is already up 16.84% over the last 12 months. From this point forward, I expect growth to accelerate rapidly.
But I digress…
Microsoft had two important announcements this week and both have provided a tailwind for the company’s share price. Both deals had—in some way, shape, or form—a connection to the firm’s ongoing pivot toward cloud computing.
A Deal with Facebook
The social media giant has 13,000 employees, all of which will now be using services from Microsoft’s “Office 365” online software platform.
This is an impressive win for Microsoft, especially because Facebook opted for the Web-based version of Office. Other companies will probably note that Facebook signed the deal despite having its own workplace product called “Facebook for Work.” It’s a messaging/social media app that is supposed to facilitate brainstorming and creativity between colleagues, but that clearly wasn’t enough to maintain Facebook’s internal operations.
The company needed e-mail and calendar services, so it opted for Office 365. That’s a major signal that could potentially help Microsoft defend against other workplace messaging apps (I’m looking at you, Slack!). We know that Microsoft has been trying to get people onto the cloud for a significant amount of time and scoring a big-name client like Facebook is an invaluable public relations (PR) coup. (Source: “Facebook Taps Office 365 While Developing Own Workplace Service,” The Wall Street Journal, July 13, 2016.)
A Deal with General Electric
Although the Facebook deal is a boon to Microsoft’s marketing department, some might think it’s too vague a reason to turn bullish on the stock.
If you’re one of those people, I suggest you check out the other deal that Microsoft announced this week—namely, that General Electric is moving all of its industrial software offerings onto Microsoft’s cloud. Let’s put that in perspective for a second: GE estimates that 20 billion industrial devices will be powered through cloud services by 2020.
That’s why the company spent $1.0 billion on a software platform that crunches data. It’s also why the company signed this deal. Microsoft is an integral part of the office space; it has always been the company that sells software to other businesses.
Think about it: how many firms would grind to a halt without “Excel,” “Word,” or “Outlook”? The number would be staggering. GE is similarly a core pillar of the U.S. industrial sector. It has a ton of corporate clients that will be using GE’s software services, but they will be forced to do so on Microsoft’s cloud. It is, minus the cost of additional servers, a windfall for MSFT stockholders. (Source: “GE And Microsoft Join Forces To Give The Industrial Cloud Extra Power,” GE Reports, July 11, 2016.)
The Bottom Line on MSFT Stock
I’ve been saying for years that cloud computing is the business of the future, but plenty of investors just shrugged and moved on. “Too complicated,” they would say. Now, it seems like GE and Microsoft are expecting a mass migration to the cloud.
When viewed together, the GE and Facebook deals tell a rare story of Microsoft. This isn’t a stodgy, old company with no ambitions; it is a firm choosing to regain its place as the backbone of American commerce. Under the leadership of Satya Nadella, the company is actually pulling it off.
And that’s why MSFT stock is up 4.31% this week.