Microsoft: Reaching For Infinity And Beyond

  • Mcrosoft is an industry leader in software services, and has been a strong company for many years
  • They are allocating a large amount of resources to their cloud segment
  • The industry as a whole is constantly evolving, but could be prone to a slowdown if the economy contracts

Microsoft (MSFT) is one of the most well-known companies in the entire world. In a perpetual race against Apple (AAPL) and Amazon (AMZN) for “Most Valuable Company”, Microsoft has been able to make a name for themselves over the past 44 years based on their product line and their openness to growth and innovation.

As a company, it has moved line-in-line with the broad Software and Services index, and has outperformed the S&P 500 by 65% over a five-year time frame. The industry itself has promising growth possibilities, with estimates of 4% growth in 2019.

Source: Capital IQ

CompTia notes that “the product mix will be an especially important factor, as the high growth rates of emerging categories are expected to more than offset the slow growth mature categories” when looking at the tech industry. This plays into Microsoft’s strategy, as they carry some slow-growth product lines within their More Personal Computing segment, but have strong exposure to emerging categories, such as the Cloud.

Source: CompTia

As technology continues to integrate into our daily lives, and as big tech becomes increasingly more competitive, it is important to pay attention to key factors that will drive growth in the industry. Artificial Intelligence and the Cloud are two big market opportunities, as well as strategic alliances both inside and outside the industry. 

MSFT has strong exposure to each of these three growth factors. Cloud demand, which is evolving constantly, will be a huge play as Microsoft continues to battle for market share. Artificial Intelligence, and all the applications it carries in the healthcare industry and other spaces, will be a another big growth driver. Finally, the company has been building out partnerships and collaborations across companies as they continue to manage their economies of scales.

MSFT: Carving Out a Spot in The Industry Through Partnerships

Source: Capital IQ

MSFT has managed to create a niche for themselves in this $5T software and services industry. They operate through three key business segments, Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Their business ecosystem is rather complex, and continues to grow through acquisitions and partnerships.

Source: Dynamics

Over the past month alone, MSFT has entered into several deals to improve their standing in the industry. On February 4th, they purchased the DataSense platform. On January 15th, they entered into a seven-year agreement with Walgreens (WBA) to provide digital health opportunities. On January 7th, it was announced that they entered a collaboration with Kroger to work on data-driven connected store experiences.

They teamed up with MasterCard (MA) in early December to work on digital identity management. They opened a joint-engineering office with Walmart (WMT) in early November. Finally, they purchased GitHub Inc in a $7.5 billion acquisition in October.

The company is priming itself for growth, and taking each opportunity as they come. Satya Nadella is a key driver of the company’s performance over the past several years. Since he became CEO in 2014, the stock price has increased by 228%, a larger gain than both Apple and the S&P 500. Overall, the governance of the company is strong, driven by a diverse Board of Directors that carries only two external directors. They scored the best score possible on three of the QualityScore pillars, scoring well in Audit, Board, and Shareholder Rights.

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Disclaimer: These views are not investment advice, and should not be interpreted as such. These views are my own, and do not represent my employer. Trading has risk. Big risk. Make sure that you can ...

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Kurt Benson 9 months ago Member's comment

Nicely done.

Angry Old Lady 9 months ago Member's comment

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