Shares of Microsoft (MSFT) have surged 58% over the past year. One might think that the stock only benefited from the recent digital transformation, but that’s certainly not the case. The company has been a dominant force for decades, and with a continual company-wide change in the works, the best may yet to come.
Here are five reasons why MSFT is still a stock to buy.
Cloud is the company’s largest and fastest-growing business, with 34% growth last year. The cloud is generally considered the future of enterprise computing, and MSFT’s Azure offering is a leading player in the space. It is currently available in more than 60 regions globally, which strengthens MSFT’s competitive position.
It is current ranked #2 right now behind Amazon’s (AMZN) AWS products, but that may eventually change as Azure is growing faster than AWS. With more of MSFT’s legacy apps and its customers switching, the company is poised for strong growth due to Azure’s ability to handle future trends such as artificial intelligence and the Internet of Things (IoT).
MSFT has a dominant position in the desktop PC market as its operating systems are being used in most PCs globally. The company also holds a near-monopoly on productivity software such as its Office products, which is not expected to change anytime soon. The switch to subscription services provides the company reliable income and improving margins.
Plus, MSFT is introducing new Surface devices to make sure enterprise companies stick with Windows. Since the company has a large installed base of Office users, enterprises will be reluctant to switch to other solutions.
The digital transformation has also benefited gaming. While MSFT had strong sales with its recent Xbox console launch, it also generates additional revenue from games and its Xbox Live online gaming service. Plus, the company has enormous upside potential in augmented and virtual reality.
MSFT recently acquired ZeniMax, which gives it access to creative studios such as Bethesda Game Studios, Bethesda Softworks, Roundhouse Studios, ZeniMax Online Studios, and all its top gaming franchises.
MSFT already has its Microsoft Teams offering, which allows it to compete with Slack (WORK) and Zoom (ZM). The company added new capabilities during the pandemic to enable users to work from home. This led to a surge in usage during that time.
Now, MSFT is in talks to acquire the video game chat platform Discord. Discord was founded six years ago to allow games to connect and chat. Now it’s used by all types of businesses and individuals for various types of collaboration. If the acquisition goes through, MSFT will gain an additional 140 million users.
Once integrated, Discord could be added to Azure and be used for real-time communication and file sharing, as it’s faster than Teams. It could also become the home base for all of MSFT’s cloud products.
MSFT has an overall grade of B or a Buy rating in our POWR Ratings service. It also has a Sentiment Grade of A, which means that Wall Street analysts love the stock. According to the StockNews Price Target feature, thirty-one analysts out of thirty-five have a Strong Buy or Buy rating on the stock. MSFT also has a Quality Grade of B. This means the company has a healthy balance sheet. It currently has a current ratio of 2.6, which means the company has more than enough liquidity to handle short-term liabilities.
We also provide the following grades for MSFT: Growth, Value, Momentum, and Stability. You can find those here. MSFT is ranked #16 in the Software – Application industry. You can find other top stocks in that industry by clicking here.
Want More Great Investing Ideas?
MSFT shares rose $0.34 (+0.14%) in after-hours trading Monday. Year-to-date, MSFT has gained 6.01%, versus a 6.20% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|MSFT||Get Rating||Get Rating||Get Rating|