2016 Outlook for Tech Stocks
This year for Christmas, I have only three things on my wish list: Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG, GOOGL). My research for a 2016 forecast on tech stocks yielded these three titans as the ones to watch next year.
Google stock has always been a valuable commodity but I’m super-bullish on the company’s metamorphosis into Alphabet Inc. By broadening the company’s focus, Alphabet executives have lifted the roof off Google stock.
Likewise, Amazon.com has a lot of big-picture dynamics and improving fundamentals that could propel AMZN stock higher in 2016. The age-old myth of tech stocks with no profits was embodied by Amazon, but that’s starting to change. Amazon stock could breakout in 2016 on strong fundamentals.
And speaking of unexpected earnings, how about Microsoft? Microsoft stock closed at its highest level in 15 years after their quarterly earnings release last Friday. We’ll take a take a look at what caused the surge in MSFT stock, as well as what Microsoft has up its sleeve.
Alphabet Inc. (NASDAQ:GOOG)
Although the move seemed strange at first blush, Google stock could benefit enormously from the restructuring of Alphabet Inc. The scale of Alphabet’s plan was simply more ambitious than markets are used to. I remember thinking it was ludicrous to abandon the Google stock brand name for “Alphabet.”
But within minutes, the fog started to lift. Google stock didn’t lose focus by restructuring, but rather gained the freedom to expand past its core business. I mean, how long has it been since we thought of Google as a search engine company?
Google gained fame for outlandish innovations like driverless cars and a network of stratospheric balloons to provide Wi-Fi to the world. Its Android software is embedded in a majority of smartphones, and Google is also branching out into wearable tech.
But for investors of Google stock, these innovations needed to be tied back to Google’s search engine business. That disparity between Google’s ambition and its legal structure was limiting the firm’s growth; and by consequence, the profitability of Google stock.
Alphabet Inc. was the solution. Google’s search engine business became just one of many subsidiaries under the new head corporation of Alphabet. Each new business line, as well as every big idea, could now be followed with absolute focus.
As we head into 2016, Alphabet may reveal new ways of monetizing its product lines, lifting Google stock to untold heights.
Amazon.com, Inc. (NASDAQ:AMZN)
Amazon stock got a five percent lift in a single week following its latest earnings report. Although the naysayers will still find room to criticize AMZN stock, the fact remains that Jeff Bezos is delivering on his promise. Amazon has always been focused on monopoly power before even considering profits.
Chart courtesy of www.StockCharts.com
Now it seems that Amazon stock has accrued enough power, because it delivered two straight quarters of profit. The biggest wins came from Amazon Web Services, the cloud computing arm of Amazon stock, which turned $521 million in profit for the three months ended September 30th. (Source: Amazon.com Form 10-Q Filing, Securities & Exchange Commission, October 23, 2015.)
The only loss-making division for Amazon stock is the international section. Obviously, Amazon isn’t as well-entrenched overseas, meaning it must continue price cutting until they gain sufficient market power. However, most analysts won’t even dare to point that out because they’re too busy removing feet from mouths.
There was no shortage of doubters for Amazon stock, but two straight quarters of profitable growth mean Amazon stock is headed higher in the New Year.
Microsoft Corporation (NASDAQ:MSFT)
Microsoft stock can finally offer investors a concentrated vision for how to integrate Windows across platforms. The success of the Surface Pro tablet was proof that using Windows on a tablet and computer were finally natural to users.
When those results became public in Microsoft’s latest earnings report, Microsoft stock shot up by more than 10%. It’s ironic how after years of being downtrodden and dismissed in the tablet race, Microsoft stock is making a comeback on that very same device. (Source: “Microsoft stock caps off best day in 15 years,” MarketWatch, October 23, 2015.)
Chart courtesy of www.StockCharts.com
Owing to the success of the Surface Pro, Microsoft will unveil its first laptop, known as the Surface Book. I should admit that my original instinct was to warn investors off Microsoft stock. Windows 8 was absurdly awkward at first, a platform that seemed to hang in no-man’s land between tablet and laptop.
As such, Microsoft’s gambit to stake a claim in the tablet space seemed doomed. But don’t ever count out Microsoft stock, because MSFT has returned 100.34% to investors over the last five years. The gains keep coming to those who wait.
I grew bullish on Microsoft stock as soon as Microsoft management understood how to manage cross-platform branding. One Note, the cloud storage link between Microsoft Office functions, makes the content portable between devices.
The stumbling block was functionality, and Microsoft seems to have resolved those issues. It’s no surprise that investors rewarded Microsoft stock by raising MSFT to its highest level since March 31, 2000.