MSFT stock: Microsoft stock is simply very expensive

Despite all the whining about the latest tech wreck, Microsoft (NASDAQ:MSFT) the stock held up pretty well.

The 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 pound the table for MSFT shares, predicting a 25% rise over the next year.

Microsoft was expected to open May 13 at around $241/share. This represents a market capitalization of $1.8 trillion on sales of $143 billion in 2020, of which more than $44 billion hit the net income line. For those scoring from home, the price-to-earnings ratio is 32.5 and the price-to-sell ratio is 12.5.

It is an expensive stock.

Why MSFT Stock?

Microsoft managed to grow 14% last year, on a large scale, and increased its profits by 13%. Despite a network of cloud data centers 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 on Zenimax, a gaming company, and $10 billion on Discord, a chat app.

How Microsoft explained Nuance is worth noting. I saw Nuance for years as a voice translation program. Microsoft calls it a key part of its healthcare cloud computing strategy. That’s because Nuance found traction by transcribing doctors’ notes into health records and putting that software on the cloud. So Microsoft hopes to use Nuance to win more hospital cloud contracts.

It is a reasonable belief. Large enterprises are turning to cloud computing as fast as they can. Microsoft rivals like Alphabet (NASDAQ:GOOGL) are investing billions in vendors to appeal to these customers, offering very 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 continues to gain cloud share.

How much is too much?

MSFT stocks have been a star in my personal portfolio and provide many other people with a golden retirement. The shares are up 367% over the past five years. While today’s dividend yield is less than 1%, these 5-year stocks are yielding 4%, which I’ve turned into even more Microsoft stocks.

Although Microsoft hasn’t been hit as hard by the latest slowdown as Amazon (NASDAQ:AMZN), down 6.6% last month, is the name analysts are looking for first for a rebound. 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 stock is security. Microsoft software was the target application of the Solarwinds hack. The company had to rethink its security.

This slows development at all levels. A new version of Windows 10, designed to compete with Google Chrome, has been discontinued. Its cloud blockchain service is being shut down.

The essential

Microsoft is no longer a get-rich-quick scheme. It’s a defensive game. This is something an analyst recommends when the market is falling and they have nothing else to say.

Microsoft has serious security issues. The cost of Azure cloud expansion 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 a vital part of our national defense.

If I had to sacrifice one of the cloud czars in my portfolio today, it would be Microsoft.

At the time of publication, Dana Blankenhorn directly owned shares in 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 on the Amazon Kindle store. Write to him at danablankenhorn@gmail.comtweet it to @danablakenhornor subscribe to his Substack https://danafblankenhorn.substack.com/.