Is antitrust risk a big concern with Microsoft Stock?

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• The success of its Azure cloud unit was a significant factor behind Microsoft (MSFT) the winning performance of the stock.
• But now a recent headline suggests he is under the scrutiny of regulators over some of this unit’s business practices in Europe.
• Even if the “worst-case scenario” happens, don’t expect it to derail the MSFT action.

Source: Asif Islam / Shutterstock.com

As a trillion dollar company, hardly a day goes by without news from or about Microsoft (NASDAQ:MSFT). Some of these developments (eg earnings) may have an immediate impact on the MSFT share price. Other developments may have little immediate impact, but could nonetheless affect its operating performance and share price in the future.

As for news that the software giant may be in the crosshairs of European regulators, consider this a good example of the latter. Much of Microsoft’s success in recent years has been due to the explosive growth of its Azure cloud segment. Still, the way it has developed this segment in Europe could put it at risk of facing antitrust scrutiny.

So far, this has had minimal impact on its share price. Even so, is this a sign of trouble to come? Let’s dive in and find out.

MSFT stock and possible antitrust review

As the Financial Times reported on April 13, the aggressive tactics Microsoft employed to win the “cloud war” between itself and its two main rivals, Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN), could end up under the scrutiny of European Union (EU) regulators due to alleged anti-competitive practices.

Specifically, the way it incentivizes potential customers of its Azure cloud service by offering them deals on its suite of cloud-based apps like Office 365. While the company hasn’t dealt with too many antitrust issues these lately, it is certainly no stranger to them.

You may recall how, twenty years ago, the US government took the company to court over allegations that it was engaging in monopolistic practices. In the end, the software giant beat the case on appeal. With the EU in particular, Microsoft has faced several bouts of antitrust scrutiny, some of which have resulted in it paying hefty regulatory fines.

However, before jumping to conclusions, keep a few things in mind. The EU investigation is only at the preliminary stage. Even if it results in another antitrust lawsuit, the end result likely won’t have a significant impact on MSFT’s stock.

little worry

Microsoft has been very successful in capturing a large share of the European cloud services market. However, this does not in itself mean that the EU will be able to prove that it is the product of anti-competitive business practices.

For example, the circumstances are different from past antitrust situations. This time there are several big names (eg Alphabet and Amazon) in the space. It’s not just a case of this tech giant, versus a handful of much smaller competitors. In addition, these major rivals also engage in similar allegedly anti-competitive practices.

Microsoft may be able to successfully defend against these claims. Again, that’s assuming what’s happening now turns into another antitrust lawsuit. Still, even if he loses in court, chances are it won’t have a serious impact.

In the worst case, he could face another fine. Past fines have been in the nine-figure range ($100 million to $1 billion). This does not mean that a fine, if there is one, cannot be in the billions. Still, since this is a business that generates nearly $20 billion a quarter, a ten-figure fine will sting, but it won’t break the bank.

The verdict on MSFT shares

Investors are right to view antitrust risk as “not a big deal” when it comes to Microsoft. Not only has it not yet evolved into a repeat of his past run-ins with EU regulators, but, as I said, worst-case scenario is unlikely to have a material impact on its future results.

Instead of worrying about it, focus on the positives that far outweigh them. Between the continued success of its Azure, Office, and Windows businesses, and the potential of its decision to expand its presence in games and the metaverse, it has a strong chance of delivering strong earnings growth in the years to come.

Ultimately, if an antitrust scrutiny comes along, it won’t derail MSFT stock. Still battered by market volatility this year, keep it on your watch list.

MSFT stocks get a “B” grade in my Portfolio Grader.

As of the date of publication, Louis Navellier had long positions in AMZN, GOOG and MSFT. The InvestorPlace research staff member primarily responsible for this article has not held (directly or indirectly) any position in the securities mentioned in this article.

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