Don’t overlook the boring legacy companies behind Microsoft Stock
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After 15 years of relatively stable performance, Microsoft (NASDAQ:MSFT) stocks went into serious growth mode in 2013. Over the past nine years, MSFT stocks have returned over 960%. The company has a market cap of over $2.2 trillion. This is despite a pullback that has hit many tech stocks and reduced MSFT by 11% so far this year.
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Despite its stumble to start 2022, Microsoft stock remains a top pick. It gets a “B” grade in Portfolio Grader.
Investment analysts polled by The Wall Street Journal classified MSFT as a consensus “buy”. Among the 43 analysts, there is not a single opponent who suggests that you sell your shares. Their average price target of $369.83 has a 25% upside.
While the focus has been on Microsoft’s “new” lines of business, like cloud computing, driving that growth, here’s a reminder that the company’s old lines of business, like its productivity suite Office and Windows also continue to perform very well.
MSFT Stock: don’t forget Office and Windows
When it comes to Microsoft, many investors have focused on industries seen as the future. These are non-traditional areas where the company is enjoying considerable success. In its most recent quarter, Microsoft reported that revenue from Azure and other cloud services grew 46% year-over-year.
Meanwhile, the company continues to make headlines for its planned acquisition of the gaming giant ActivisionBlizzard (NASDAQ:ATVI). This purchase should strengthen the company’s position in everything from Xbox games to the Metaverse. He is seen as an important future driver for the growth of MSFT shares.
I can understand the excitement. However, from my perspective, the key to investing in MSFT stocks is not just the promise of cloud computing, gaming and the metaverse. It’s the economic reliability of the things Microsoft has been doing since day one: Office and Windows. They’re like insurance in case one of Microsoft’s big bets fails, but they also continue to be an important contributor to the company’s success.
Looking at Q2 earnings reported by MSFT in January, productivity and business process revenue grew 19% year-on-year to $15.9 billion. Much of this revenue was generated by consumer and commercial versions of Office products. This represents 31% of the company’s total turnover. The More Personal Computing division had revenue of $17.5 billion. This represents a 15% year-over-year increase and 34% increase in total company revenue. A lot of that was Windows and commercial Windows products. Windows OEM revenue (fees paid by PC manufacturers to install Windows on their computers) increased by 25%.
In short, boring old “legacy” companies like Office and Windows still made up a huge chunk of Microsoft’s revenue. And that revenue continues to grow – it doesn’t fade.
Conclusion on MSFT shares
When considering investing in MSFT shares, you should definitely look to the future. The company’s Azure cloud services and Xbox gaming division – and their combined ties to the metaverse – offer the promise of continued long-term growth.
However, what makes MSFT stock so attractive is that even if the Metaverse fails to reach its potential, even if Surface hardware does not sell as well as hoped, even if the popularity of Xbox games slows and even if Bing never manages to expand its search engine market share, Microsoft will remain a solid company. Because, despite the advances made by competitors, Windows still holds nearly 75% of global market share.
This means that the revenue (and profit) generated by Windows, Office, and related products and services will continue to flow, as they have for decades. Having this huge company in your back pocket is one of the main reasons why an investment in Microsoft is not a gamble.
Chances are, the company’s investments in cloud computing and other technologies will pay off big. The trajectory of MSFT stock over the past nine years shows that the company’s strategy is paying off. But even if things go wrong for a while, the reliable cash cows of Windows and Office will still be there.
With MSFT stock currently down 11% so far in 2022, there is an opening to pick up falling stocks with a high probability that they will generate impressive long-term growth. And little risk that a bad bet on technology will cause them to lose value.
As of the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier has held (neither directly nor indirectly) any other position in the securities mentioned in this article. The InvestorPlace research staff member primarily responsible for this article has not held (directly or indirectly) any position in the securities mentioned in this article.
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