Don’t sell your Microsoft stocks, says this fund manager

Big Tech’s pullback in recent weeks has left investors wondering if stocks like Microsoft (Microsoft Stock Quote, Chart, News, Analysts, NASDAQ Financial Data: MSFT) are just taking a break or if there is more decline to come. Either way, you shouldn’t be too worried about owning MSFT, says portfolio manager Colin Stewart, who believes the stock is a long-term hold.

“We own a bit of Microsoft in our US Value Fund,” said Stewart, CEO of JC Clark Limited, who spoke to BNN Bloomberg on Wednesday. “I don’t think there is anything specifically negative about Microsoft and the recent setback. I think it’s just a general pullback in tech stocks.

Microsoft posted a strong 2020, as have many US tech giants who have come to be favored amid the pandemic that has forced businesses around the world to adopt new measures to adapt to the world’s new economy. Work at home.

This environment has benefited Microsoft, whose Azure cloud computing saw accelerated growth last year. With its latest quarterly report, Microsoft’s second quarter of fiscal 2021, released in January, the company’s server products and cloud services revenue grew 26% year-on-year, while Azure itself has increased by 50%.

Microsoft said that aside from the growth associated with the pandemic, the ongoing digital transformation of services and infrastructure has been a key driver.

“What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping through every business and industry,” CEO Satya Nadella said in the press release of Microsoft’s second quarter. “Building their own digital capacity is the new motto that drives the resilience and growth of every organization. Microsoft is fueling this change with the world’s largest and most comprehensive cloud platform.

Microsoft’s second quarter saw better and worse results, with revenue of $ 43.08 billion higher than analysts’ expectations, whose consensus estimate was $ 40.18 billion. EPS of $ 2.03 per share was also above the expected $ 1.64 per share. (All figures are in US dollars.)

Even the company’s forecast for the coming third quarter has been surprising, with Microsoft expecting revenue to range between $ 40.35 billion and $ 41.25 billion, compared to Street’s $ 38.70 billion.

After ending 2020 with a return of 41%, MSFT is currently up around 7% for 2021, although the stock has fallen around 5% in the past month.

Stewart said investors who have held Microsoft for a while might consider reducing some of their position, but he believes there is no need to step aside.

“Microsoft is definitely not cheap,” said Stewart. “It’s not as cheap as it used to be. The rising tide has lifted all the boats in the tech sector and everything has become more expensive.

“But compared to some of the other tech companies or their peers, I think Microsoft is actually reasonably valued because there are so many tech companies and software companies that are trading at much higher multiples,” he said. -he declares.

“Microsoft is obviously a dominant software franchise and a great game franchise and it’s really a phenomenal long-term business, so there’s always a chance you might want to take a bit off the table if you’ve had a really good run and a great profit, ”said Stewart. “But it is definitely a business that we see as a good business to hold on to for the long term.”

Microsoft has seen a number of developments over its long history in the software space, the most recent being the growth of its cloud business relative to its Windows and Office products.

Microsoft currently has three business segments: More Personal Computing, which includes Windows and hardware such as the Surface and Games line, Intelligent Cloud, which includes the company’s server products including Azure, and Productivity and Business Processes, which includes the Office suite and LinkedIn.

Currently, each segment generates around a third of total revenue, but that parity is unlikely to last.

“We have quarterly Azure revenue of $ 11.8 billion by June 2022, for the first time eclipsing Office’s all-inclusive revenue of $ 10.9 billion. Piper Sandler analyst Brent Bracelin said speaking to CNBC in January. Microsoft doesn’t mention Azure’s revenue in its financial reports, but Bracelin estimated it at $ 7.20 billion for the company’s second quarter 2021, which equates to 17% of total revenue vs. only 4% of total revenue three years ago, according to the CNBC report. Microsoft’s Windows business contributed $ 5.72 billion in the second quarter, according to the company’s quarterly report.

In a February 2 report, Bracelin reiterated his “overweight” rating on MSFT with a price target of $ 300. Bracelin called Microsoft “one of the best-placed Cloud Titans to own over the next decade.” At the time of publication, the analyst’s goal of $ 300 represented a projected one-year return of 25%.