On April 5, the US Federal Reserve announced a rapid reduction in its massive balance sheet. This caused the stock market rally to halt and Treasury yields jumped instead. This move also caused mega-cap stocks like Microsoft Corporation (MSFT) to fall. Despite this, we are bullish on the stock.
Microsoft is one of the most reputable technology companies in the world that has a solid track record of attractive returns. Over time, the company has seen a strong, long-term uptrend and served as an anchor stock for many tech investors.
Although recently it too has suffered to some extent from the bear market situation in technology, its suffering has been less extreme than that of many other technology stocks. It seems that the market has immense confidence in its resilient business model, relatively speaking.
It’s a good time to take a look, especially now that the Fed has made it clear that it will raise interest rates and shrink its balance sheet.
Microsoft Corporation is a United States-based multinational technology company engaged in computer software, consumer electronics, personal computers, and many other related services.
The company has actively moved its customers’ legacy workloads and applications to the cloud and is exposed to multiple software themes in cybersecurity, data analytics, CRM, ERP, gaming and many others. Additionally, Microsoft has a formidable grip on the SaaS space and also benefits greatly from the strength of its Azure IaaS.
Microsoft’s well-diversified business model operates across multiple profitable segments. However, with the advent of the pandemic, its Azure segment received a huge boost. Considering the current industry scenario, it looks like this sector will be a major contributor to the future growth of the business.
According to Gartner research, the proportion of new workloads deployed in a cloud-native environment will increase from 30% in 2021 to 95% in 2025, providing vast growth opportunities for companies like Microsoft. Therefore, as the stock is currently falling, this may be a perfect buying opportunity.
Brent Bracelin, a Piper Sandler Wall Street analyst, also has a similar view on Microsoft stock and gave it a buy rating about three months ago. He recommended people looking for growth stocks add Microsoft to their portfolios because of the favorable risk-reward opportunity it offers its investors, especially after the market pullback.
Several avenues of growth
One of the main reasons for Microsoft’s stability is its diversity of operations. Indeed, multiple sources of income with continuous cash flow ensure that the business can not only survive, but also grow and expand non-stop.
Microsoft operates three solidly profitable segments to support its robust growth. As there has been a revival in the use of PCs, especially after the outbreak of the pandemic, its former personal computing segment has seen respectable growth.
Its Windows 11 provides an excellent user experience for PC users, and due to the multitasking and productivity benefits that its new Snap layouts provide, more and more people are loving it these days.
The company’s momentum in the cloud computing and cybersecurity sectors is also promising. Azure has seen strong momentum in the hybrid and multi-cloud realms, and the SaaS advantages it offers have also given it huge leverage opportunities to integrate new productivity tools and automation software internally.
All of these integrations have greatly boosted the company’s operating margins. In addition, its cybersecurity solution is highly regarded. There are rumors of a partnership with Google in this space these days.
Strong finances
Microsoft has some of the strongest financials in the tech industry. In its most recent results reported in January, the company’s revenue rose 20% year-over-year to $51.7 million in the final quarter of 2021, and its operating profit also fell. increased by 24% to $22.2 billion over the same period.
Net income was $18.8 billion, which was also up 21% from a year ago. Revenue from LinkedIn, Dynamics products and the cloud services segment showed high growth potential.
The Taking of Wall Street
As far as Wall Street is concerned, MSFT stock is looking like a strong buy based on 27 unanimous buy ratings over the past three months.
Microsoft’s average price target is $374.88, implying a 32.5% upside. Analyst price targets range from a low of $320 per share to a high of $425 per share.
metaverse game
The metaverse is the next best thing and is expected to grow into a $678.8 billion industry by 2030 compared to the $38.85 billion industry it was in 2021. Microsoft is ready to venture in this world of virtual reality.
The company intends to create an enterprise metaverse containing the virtual representation of all Microsoft tools, thereby creating real-time collaboration with the virtual world. Microsoft Mesh is about to launch and will come with a set of pre-built immersive spaces for hosting meetings and socializing. It will also allow its users to create avatars and interact with each other.
Microsoft intends to acquire Activision Blizzard (ATVI), the video game giant, to help him build his own world in the metaverse. Currently, the deal is under intense scrutiny by regulators.
Conclusion
Microsoft is one of the best stocks to hold right now to protect your portfolio against market fluctuations. The stock has such strength that it could easily pass the pull of the bear market without losing much of its valuation, in our view.
Moreover, the company is poised to grow in the future given the plethora of opportunities available to it. It also pays a dividend of $0.62 per share. Also, the several regular streams of its income have always ensured the company the availability of respectable cash flow.
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