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Microsoft
stock (ticker: MSFT) has risen to the top of the heap this year thanks to its successful transition to cloud computing and the subscription model.
With the year almost over, we take a look at the 30 stocks in the
Dow Jones Industrial Average,
starting with the least performing—
Goldman Sachs Group
(GS) – and progress to the most flying stock in the benchmark –
Merck
(MRK). Rankings may change before the 2018 market close, but the stories behind the stocks shouldn’t.
Not only has Microsoft surpassed
Apple
(AAPL) to become America’s most valuable publicly traded company in November, Microsoft also ranked among the best performing technology stocks on the Dow Jones by reporting earnings that beat Wall Street expectations for every quarter it reported in 2018.
As of Friday, Microsoft had a market value of around $770 billion, enough to beat Apple’s $740 billion and Amazon’s $730 billion.
The seeds of Microsoft’s revival this year began when Satya Nadella became CEO in 2014. Nadella shifted the company from a Windows-only focus to a cloud-based, subscription-emphasized strategy.
The bet on cloud computing was prescient as Microsoft became a major player in the booming market. The company is now a clear No. 2, with a 13% share of cloud computing behind
Amazon.co.uk
it is
(AMZN) Amazon Web Services at 52%, according to 2017 figures from Gartner. The gap is narrowing as Microsoft’s Azure cloud sales grew 76% in its latest quarter, compared to AWS’s 46%.
Nadella also reinvigorated Microsoft’s productivity software, focusing on the subscription version of Office known as Office 365. The customer-focused subscription acceleration strategy paid off. In its most recent quarter, Microsoft said sales and profit grew 19% and 36%, respectively.
It’s been a stunning run for Microsoft stocks, as 2018 will be the sixth straight year to beat the Nasdaq Composite in earnings.
Bank of America Merrill Lynch analyst Kash Rangan said Dec. 20 that Microsoft’s strong performance will continue into next year.
“MSFT has undergone a great transformation, both in terms of new product development (much faster development cycle) and time to market,” Rangan wrote at the time. “The main areas of business growth going forward are still cloud-driven, but increasingly, the business desktop (proliferation of productivity/collaboration software for all workers), gaming.”
He maintained his buy rating and reiterated his $140 price target for Microsoft shares. The analyst predicts that the company’s Azure cloud computing segment will also increase its profitability as it reaches larger scale.
Write to Tae Kim at tae.kim@barrons.com
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