Bill Gates is a household name in the software and technology industry. He co-founded Microsoft (MSFT) with Paul Allen in 1975, and the company now boasts a market cap of almost $2 trillion. While Microsoft offers hardware and services, it is best known for its software products, including the ubiquitous Microsoft Windows operating system (OS).
Investors who bought shares at Microsoft’s initial public offering (IPO) in 1986, when they were selling for $21, have been handsomely rewarded, as have those who invested more recently. With a track record of success over time, Microsoft is well positioned to continue innovating in the ever-evolving tech landscape. From cloud computing to artificial intelligence (AI), Microsoft is a stock worth buying and holding onto.
Growth Opportunities Ahead
As the world’s largest software maker by revenue, Microsoft has a solid history of success that makes it an excellent investment choice. Despite recent challenges, the company’s diverse revenue streams enable it to weather tough times and continue generating significant cash flows.
Although Microsoft’s latest earnings report showed slowing growth, its intelligent cloud revenue growth remained strong, with Azure and other cloud services revenue growing by 31% in FY23 Q2 (up 38% in constant currency). Azure, which was launched in 2010, is expected to become a multi-billion dollar revenue stream and has been a primary driver of strong returns over the past decade. With approximately 22% market share, second only to Amazon’s AWS, Microsoft is well positioned to benefit as the cloud market expands.
In addition to cloud computing, Microsoft is investing heavily in artificial intelligence (AI), including a multi-billion dollar investment in OpenAI, the creators of ChatGPT. Microsoft aims to develop and deploy supercomputing systems and has the exclusive cloud partnership with OpenAI. This presents an opportunity to integrate ChatGPT capabilities into Microsoft’s products, such as Bing, its search engine, to create a more engaging user experience. With Alphabet (GOOGL) currently dominating the search engine market, Microsoft has the potential to chip away at Google’s share of worldwide searches and capture a significant growth opportunity.
In a nutshell, Microsoft’s strong track record, diverse revenue streams, and strategic investments in cloud computing and AI make it a winning choice for investors looking to the future.
Is Microsoft a Safe Bet?
While buying Microsoft shares today may not deliver the same explosive returns as in the past, it remains a solid company that can reward investors who take a long-term view. By blocking out short-term noise and staying patient, investors can watch their investment grow over the coming decade.
Despite a 10% decline in share prices over the past year, Microsoft’s shares were up nearly double-digits earlier this year. While some investors may be hesitant due to short-term signals, most analysts recommend buying Microsoft.
The company is investing in lucrative opportunities such as cloud computing and AI while expanding its existing businesses. For example, Microsoft recently partnered with Netflix to become its ad tech provider, powering the streaming service’s first ad-supported tier.
While startups in the technology sector can potentially offer exponential returns, they also carry significant risk. For instance, Upstart’s stock price rose rapidly before crashing from nearly $400 in October 2021 to below $20 this year. In contrast, Microsoft has established itself as a relatively safe investment, having increased its dividend payout for 18 consecutive years. Although the current yield is just 1.05%, Microsoft has raised the payout by over 10% in the last three years.
So while Microsoft may not offer the same high-risk, high-reward potential as some startups, its solid history and consistent dividend growth make it an attractive choice for investors seeking long-term stability and returns.
What Could Go Wrong?
While investing in large companies like Microsoft may seem like a sure thing, it’s important to recognize that no investment is completely risk-free. Microsoft is no exception, as there are potential obstacles to consider. For instance, Microsoft Azure faces stiff competition from other cloud computing giants such as Amazon AWS and Google Cloud. However, the global cloud computing market is expected to reach $1.55 trillion, with some estimates as high as $3 trillion, leaving plenty of room for all three players.
Another concern is the worldwide chip shortage, which could impact Microsoft’s reliance on PCs. However, the company has taken steps to mitigate this issue by acquiring Fungible, a significant step toward bringing chip design in-house. Furthermore, like many other large corporations, Microsoft is not immune to the current state of the US economy. In the event of a recession, technology spending could be affected. However, Microsoft’s diverse revenue streams and history of weathering tough economic times make it a relatively safe investment option.
Is Microsoft a Buy?
Microsoft is a well-established and diversified company with numerous strengths. It boasts a talented management team, and at its current stock price, presents an attractive entry point for investors. For those with a long-term investment horizon, Microsoft is a safe and reliable option for building wealth. Patiently holding onto your investment could yield significant returns over time.