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The forgotten FAANG: How Microsoft hit $1 trillion

Daniel Howley
Technology Editor

Microsoft (MSFTreported better than expected earnings on Wednesday, briefly pushing the company’s stock price above the $1 trillion point for the first time in its history. The tech giant’s stock is up 30% since December, and was up more than 4% in early trading Thursday.

Microsoft is only the third company to hit the $1 trillion mark. The company’s former chief rival, Apple (AAPL), was the first followed by Amazon (AMZN). Those two have since fallen from those highs, but still have market caps well within the $900 billion range.

The Redmond, Washington-based company’s continued growth puts it in rare company among tech stocks, but it’s, surprisingly, not mentioned in the same breath as the popular FAANG stocks—Facebook (FB), Amazon, Apple, Netflix (NFLX) and Google’s (GOOG, GOOGL) parent company Alphabet. 

But look at Microsoft’s growth over the last five years, and its upward trajectory looks a lot like those other tech companies.

So how did Microsoft seemingly sneak under the radar and close in on Apple and Amazon as one of the most valuable public companies in the U.S.? It’s all about the cloud and the decision to let consumers choose their own devices.

Betting big on the cloud

Like any company as large and old as Microsoft, the software giant has had its fair share of missteps. It missed the boat entirely on the smartphone revolution. And when it did release its own Windows Phone devices, they fell flat. Meanwhile, Apple’s iPhone and Google’s Android, along with their respective app stores, dominated the market. There’s a reason you’re not reading this on a Windows phone.

Then there was the inauspicious launch of Microsoft’s Windows 8 operating system, which consumer and professional users both disliked.

But Microsoft made the right call when it bet on the cloud. To be sure, Amazon’s Web Services cloud computing platform is the most widely used cloud system in the world. But while Amazon gets all the attention, Microsoft has built up its Azure cloud service to become the number two offering, with Google trailing behind in third.

Microsoft CEO Satya Nadella has overseen massive changes at the tech giant that have pushed it to become one of the most valuable companies in the world. (AP Photo/Elaine Thompson, File)

According to Ed Anderson, vice president of research and distinguished analyst at the market research Gartner, more companies are modernizing their technology needs. Cloud computing essentially lets a company rent the infrastructure needed to create and deploy apps, manage remote storage and run virtual computers.

“Microsoft has made some really smart investments that make them relevant to that discussion,” Anderson said. And while Amazon, he said, epitomizes the transition to this new kind of IT workspace, Microsoft, Anderson explained, has managed to reinvigorate its already massive built-in user base.

Of course, it doesn’t hurt that Microsoft has transitioned its Office offering to a cloud service, which helps ensure a continuous revenue stream rather than a one-time license sale and helps lock customers into the company’s business.

Microsoft’s Azure, meanwhile, is an incremental change with some new, impressive technologies for existing Microsoft enterprise customers, Anderson explained. Amazon, on the other hand, is attracting new customers.

Microsoft needs to continue to evolve

Microsoft’s current CEO, Satya Nadella, deserves a lot of the credit for the massive cultural shift at the tech giant that helped drag the company into the modern IT age by ensuring that all devices are compatible with Microsoft’s offerings. In the past, if you didn’t have a Windows computer and wanted to use a piece of Microsoft software, you were out of luck. Today, Microsoft welcomes devices from brands across the tech industry landscape.

Still, the massive growth Microsoft has seen in recent years isn’t just Nadella’s doing. Former CEO Steve Ballmer laid the groundwork  by kicking off the Office 365 and Azure initiatives. But Nadella’s appointment to CEO helped bring about renewed interest in the company from investors and customers alike.

That won’t last forever, though. Microsoft needs to continue to innovate if it wants to hold on to the momentum it’s seen in recent years and give Amazon a run for its money.

“They’ve got to be seen as a provider who is going to take their customers, as well as new customers, into the future,” Anderson explained. “And right now Amazon, and like I said to a lesser extent Google, kind of own that mindshare. Microsoft has got to make that transition.”

That means this new, reinvigorated Microsoft might not last long, especially if Amazon and Google manage to innovate more than the Windows maker.

A version of this story previously ran in November 2018.

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Email Daniel Howley at dhowley@oath.com; follow him on Twitter at @DanielHowley. Follow Yahoo Finance on Facebook, TwitterInstagram, and LinkedIn.finance.yahoo.com/…/pokemon-lets-go-pikachu-lets-go-eevee-review-little-old-little-new-140018574