2017 is clearly the year of Big Tech.
Shares of Alphabet, owner of Amazon and Google, are trading at record highs. Amazon briefly passed the $1,000 mark on Tuesday and Alphabet is flirting with it. Apple, Netflix and Facebook have soared over 30% this year.
But don’t sleep on another tech giant whose stocks are doing extremely well – Microsoft (MSFT). The shares are up nearly 13% this year and are also trading at an all-time high.
Microsoft is now worth $540 billion.
It still has some way to go before it hits its all-time high valuation of nearly $620 billion since late 1999, just before Bill Gates stepped down as CEO. The spin-off of Expedia (EXPE) and other asset sales account for the gap between the stock’s peak price and market value.
But Microsoft’s continued strength means that Amazon (AMZN) is still not the most valuable company headquartered in Washington State. It is worth “only” 475 billion dollars.
So what’s the reason for Microsoft’s big rally lately?
Simply put, CEO Satya Nadella continues to push the company further into the lucrative world of cloud computing — and away from some of the mistakes made during the tenure of his predecessor and Gates successor, Steve Ballmer.
Remember aQuantive, the online advertising services company that Microsoft bought for over $6 billion? I did not mean it. Microsoft’s acquisition of Nokia’s device business didn’t quite pan out either.
Neither has Microsoft’s decision to manufacture its own mobile gadgets. There’s a funny scene in “Guardians of the Galaxy Vol. 2”, where Peter Quill receives a Zune player. He was told that “everyone on Earth” had one and marveled (pun intended) at how 300 songs it contained.
All of this is now ancient history. Microsoft now generates almost a third of its revenue and nearly 40% of its operating profit from its so-called “Intelligent Cloud” line of business.
Much of that comes from Azure, Microsoft’s competitor to Amazon’s cloud-based web services division. But Microsoft also derives cloud-based revenue from its Office and Windows businesses.
Nadella also made a big bet on social media with Microsoft’s purchase of LinkedIn in 2016.
Microsoft hasn’t completely abandoned the hardware either. The new Surface Pro and Surface Laptop have received good reviews.
And early signups for the company’s Xbox Game Pass (a subscription service for video games that’s a bit like Netflix) would be strong.
So while many on Wall Street and Silicon Valley continue to rave about Amazon’s success, Facebook (Facebook), Google (GOOGL) and Apple (AAPL), Microsoft is not left out either. Nadella helped make Microsoft cool with investors and customers.
CNN Money (New York) First published May 31, 2017: 12:28 p.m. ET
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