Microsoft (MSFT) Stock Isn’t Banking on a Popularity Contest
For years, Microsoft Corporation (NASDAQ:MSFT) earned a strong reputation as a software company. Although MSFT has never really been about one thing, the firm’s association with the synonymous Windows operating system was unavoidable. And even though Apple Inc. (NASDAQ:AAPL) offered its own unique take on software solutions, Microsoft products have the upper hand.
I don’t necessarily care that Apple disrupted the broader consumer-electronics industry with their iPhones, iPads, and iWhatevers: their first-to-market advantage lasted for some time, but it’s definitely waning.
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I appreciate that Microsoft products—such as their Surface tablet/notebook hybrid—are ergonomically engineered. Try doing a spreadsheet-intensive project on an iPad or a tablet and you’ll quickly realize the virtues of “old-school” technologies like a keyboard and mouse.
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Consider too that Microsoft’s lean years throughout most of the 2000s decade is well in the rear-view mirror. The five-year trailing return for MSFT stock currently stands at 141%. In comparison, AAPL comes in at 62%. While Apple draws the headlines, the smart money made plenty of profits off of MSFT.
Even after soaring to a 21% year-to-date lead, I don’t think the house that Bill Gates built is done. As I mentioned previously, Microsoft products are geared towards the consumer. A J.D. Power study on tablet users found that customers are more satisfied with MSFT than with tablets from Apple, Amazon.com, Inc. (NASDAQ:AMZN), Samsung Electronics (OTCMKTS:SSNLF), and others.
They fell a step behind during the Steve Ballmer era, but under current CEO Satya Nadella, Microsoft regained its groove. With this positive momentum, I’m looking forward to new businesses that will add value to MSFT stock.
MSFT perfectly Geared for the Cloud
Microsoft’s natural target is cloud computing, which has soared since its introduction late last decade. According to Statista.com, the cloud was less than a $6 billion market. This year, the industry generated approximately $130 billion and by 2020, the cloud could be worth over $170 billion. Other sources peg forecasts at a much higher figure. Regardless, we can all agree that the cloud is one of the pivotal sectors of the future.
Presently, a basic but popular function of cloud computing is storage services. As businesses expand and their data requirements increase accordingly, many companies choose outside cloud solutions. Based on economies of scale, it’s more cost-effective to utilize a cloud-service provider like MSFT rather than to build up their own data centers.
But merely acting as a “giant computer in the sky” isn’t what makes Microsoft’s proposal special. As they have proven with their foray into tablets, mere functionality isn’t enough. A reason for the advanced technology must exist.
As InvestorPlace contributor Tom Taulli points out, cloud-based companies must produce a platform that can “provide actionable insights for businesses, such as for customer support, product development and customer acquisition and retention.” To that end, Microsoft invested substantially into companies specializing in artificial intelligence.
Thanks to its cloud strategy, long-term investors of MSFT stock can breathe a little easier about the firm’s LinkedIn acquisition. Plenty of questions surrounded the high-profile, high-dollar investment, not least of which was Microsoft’s history of bad deals. But because of this deal, it has a reason for being in the cloud that goes beyond an ego contest.
As Taulli puts it, LinkedIn is the “Facebook Inc (NASDAQ:FB) of the business world.” With Microsoft’s AI advancements, it can transfer that effort to services of real value.
Microsoft is taking Smart Risks
I also applaud the tech firm’s foray into the blockchain, the innovation that underlines Bitcoin and other cryptocurrencies. Utilizing its partnership with Accenture Plc (NYSE:ACN) and its own Coco Framework technology, MSFT hopes to use the blockchain to improve the banking and finance sector.
Similar to the LinkedIn deal, this move probably raised a few eyebrows. While many people believe in blockchain assets like Bitcoin, others, like our own James Brumley, are extremely skeptical.
I take a different view. Although Bitcoin is often maligned, its role as a competing currency is only one of several possibilities of the blockchain. With a few more years, the blockchain could revolutionize finance, accounting, business; generally, anything that has to do with data storage, transfer, and security. Microsoft is making a great decision here, and eventually, MSFT stock will follow suit.
With all that said, Microsoft shares lost their “undervalued” status. Fundamentally, though, management has placed the firm for future success. As a long-term bet, few investments are better than MSFT stock.
Josh Enomoto is long Bitcoin.
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