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Despite all the whining about the latest tech wreck, Microsoft (NASDAQ:MSFT) the stock held up fairly well.
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Shares have fallen only 3.5% since the announcement of results deemed disappointing on April 27. But they are still up 7.5% over the year. Analysts continue to beat the table for MSFT stock, 25% increase forecast over the next year.
Microsoft was scheduled to open on May 13 at around $ 241 / share. That’s a market cap of $ 1.8 trillion on sales of $ 143 billion in 2020, of which over $ 44 billion hit the net income line. For those who score from home, the price / earnings ratio is 32.5 and the price / sales ratio is 12.5.
It is an expensive stock.
Why MSFT Stock?
Microsoft managed to grow 14% last year, on a large scale, and its profits rose 13%. Despite a cloud data center network valued at $ 53 billion, it ended March with $ 125 billion in cash. His purchase of Nuance (NASDAQ:NUAN) for $ 16 billion, $ 19.7 billion including debt, is therefore easily affordable.
Nuance is just the latest in a series of acquisitions Microsoft has made recently to drive growth. Previously, he spent $ 7.6 billion to Zenimax, a games company, and $ 10 billion on Discord, a chat application.
Noteworthy is how Microsoft explained Nuance. I have seen Nuance for years as a voice translation program. Microsoft calls it a key part of its healthcare cloud strategy. This is because Nuance has found success in transcribing doctors’ notes into health records and putting this software in the cloud. Thus, Microsoft hopes to use Nuance to win more hospital cloud contracts.
It is a reasonable belief. Large companies are moving to cloud computing as fast as they can. Microsoft’s competitors like Alphabet (NASDAQ:GOOGL) invest billions of sellers to appeal to these customers, offering low, low prices that include full application suites. The way to compete is to provide industry specific cloud services, as was done with database applications a decade ago. Microsoft is continue to gain cloud share.
How much is too much?
MSFT Stock has been a star in my personal portfolio and offers many others a golden retirement. Shares have risen 367% over the past five years. While today’s dividend yield is less than 1%, these 5-year stocks get a 4% yield, which I turned into even more Microsoft stocks.
While Microsoft wasn’t hit as hard by the latest downturn as Amazon (NASDAQ:AMZN), down 6.6% last month, is the name analysts bear look first for a bounce. You can call it overvalued but analysts don’t care. What’s this International Business Machines (NYSE:IBM) was when Microsoft was a start-up.
The biggest risk in the stock is safety. Microsoft software was the target application in Solarwinds hack. The company had to rethink security.
This slows down development at all levels. A new version of Windows 10, designed to compete with Google Chrome, has been sidelined. Its cloud blockchain service is being to close.
The bottom line
Microsoft is no longer a get-rich-quick scheme. It’s a defensive game. This is something an analyst recommends when the market is going down and they have nothing more to say.
Microsoft has serious security concerns. The cost of expanding the Azure cloud is now growing as fast as revenue. While the cloud is the most cost effective way to deploy software, we are in a time of cyber warfare. Microsoft is an essential part of our national defense.
If I had to sacrifice one of the cloud czars in my wallet today, it would be Microsoft.
At the time of publication, Dana Blankenhorn directly owned shares of MSFT and AMZN.
Dana blankenhorn has been a financial and technology journalist since 1978. He is the author of The Big Bang of Technology: Yesterday, Today and Tomorrow with Moore’s Law, available from the Amazon Kindle store. Write to him at danablankenhorn@gmail.com, tweet it on @danablankenhorn, or subscribe to its sub-stack https://danafblankenhorn.substack.com/.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
