Of the five so-called “Cloud Czars”, or technology companies that have their own cloud computing centers, the quietest is Microsoft (NASDAQ:MSFT) and Microsoft shares.
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No wonder they’re the only big tech company Citicorp thinks may outperform next year. He’s one of his analysts best ideas for 2021.
The problem is, Microsoft is still a Cloud Czar. It’s a little different from other companies ridiculed as “Big Tech” – Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook (NASDAQ:FB). Its economic model is similar. Its size too.
His vulnerability too. If 2021 is to be a downfall of the software gods, there’s no reason Microsoft should get a pass.
The Microsoft difference
Microsoft is different in one respect from its peers. It’s been here before.
The case of United States vs. Microsoft, decided in 2001, ruled that Microsoft had a monopoly on PC software. He felt that Microsoft had abused its power by adding a browser to Windows. The result was a settlement whereby Microsoft agreed to share its application program interfaces (APIs) with other companies.
More importantly, Microsoft spent the next decade in a funk. I worked for them at the time. The company was filled with timid lawyers and executives whose job it was to say no. The stock’s performance lagged the market. Microsoft has become an income stock.
Microsoft’s obligations under its regulations did not end until 2012. Shortly thereafter, Steve Ballmer, who had been CEO during that time, elected to retire. His successor, Satya Nadella, has decided to follow Google, Amazon and Facebook in the clouds. (Apple came later.) Nadella is committed to building a network of cloud data centers. He is now the largest in the world, available on all continents.
This cloud is today’s Microsoft. I decided to put 100 stocks in my retirement account at a price of around $ 50 in 2016. Now they are at $ 223.
The responsibility of a cloud
Microsoft owns the technology. The world depends on its systems and software.
Again, like 20 years ago, he has a target on his back. The state sponsored hackers that broke into SolarWinds and its Orion software used it to attack Microsoft. They then used Microsoft’s network and tools attack others.
Once Microsoft knew it was compromised, he unleashed a “death star” of tusks. He closed the permissions of SolarWinds. He took over the websites used in the attack. He quarantined the affected software.
The attack highlighted Microsoft’s power and responsibility over the global economy. The company had $ 143 billion in revenue in its fiscal year, which ended in June. He almost brought 31% of that, $ 44 billion, to net income.
With little direction to expand its reach, Microsoft joins Apple, Amazon and Google in design your own chips. Intelligence (NASDAQ:INTC), once its partner in the ‘Wintel’ duopoly of the 1990s, is now barely a tenth of what Microsoft is worth. As hardware becomes software, it’s a natural evolution. Chips consume capital and large cloud companies need to deploy it. Microsoft had $ 138 billion in cash at the end of September.
The bottom line for Microsoft Stock
As the clouds dominate the world, they have assumed their responsibilities. They are as powerful as governments. Microsoft’s market cap of $ 1.68 trillion now exceeds Canada’s GDP. Apple’s exceeds Brazil’s GDP.
Clouds are approaching a natural limit in terms of size and economic power. They become the equivalent of governments to themselves. It is inevitable that governments will want to assert their authority now, especially given incidents like SolarWinds.
This includes Microsoft. The growth of the company will return to an average. Its operating costs will increase. It will become a stock of income again. Analysts calling it their best idea will have to think again.
At the time of publication, Dana Blankenhorn had long positions in AAPL, MSFT, INTC and AMZN.
Dana blankenhorn has been a financial and technology journalist since 1978. His latest book is The Big Bang of Technology: Yesterday, Today and Tomorrow with Moore’s Law, technology essays available on the Amazon Kindle store. Write to him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.
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