Microsoft Corporation (NASDAQ: >MSFT
>MSFT) has turned the corner. Until recently, most stock watchers associated the company with PC software as PCs growth began moving downward. Now under new leadership, the company has made successful forays into other areas of tech. With these successes, MSFT stock now stands as a low-risk play poised to grow to levels not seen for years.
For decades, Microsoft earned the majority of its profits from Windows and MS Office. With the decline of the PC, these markets became less relevant, as did the MSFT as a whole.
However, under the leadership of current CEO Satya Nadella, the tech giant has launched successful ventures in cloud computing, virtual reality (VR), and artificial intelligence (AI). Due to its ability to redefine itself, Microsoft deserves its rightful place as an old tech company.
International Business Machines Corp. (NYSE: >IBM
Texas Instruments Incorporated (NASDAQ: >TXN
>TXN), the stock has demonstrated its ability to evolve and succeed decade after decade as lines of business fall in and out of favor.
Of course, the fact that MSFT has had one of the largest cash reserves in corporate America for decades didn’t hurt. We know Microsoft isn’t destined to become the next
Eastman Kodak Company (NYSE: >KODK
Smith Corona Corporation, companies that were unable to evolve with the times. And in this new landscape, MSFT has become a direct competitor of one-time ally IBM.
Cloud Computing and VR Drive MSFT Stock
Microsoft Azure, its cloud computing platform, has been a growth leader of the new Microsoft. It built an alliance with one-time rival Oracle Corporation (NASDAQ: >ORCL
>ORCL) and created the Azure platform. It now enjoys over 90% annual growth.
Though it lags behind the
Amazon.com, Inc. (NASDAQ: >AMZN
>AMZN) product Amazon Web Services (AWS), it’s become the fastest-growing platform on the market.
The company also competes in the virtual reality space as the company recently released its VR headsets with motion controllers to the market. Also, it’s legacy business still has slow growth, though the Microsoft Surface line of products has increased revenues by 12%.
Growth Returns to Double-Digit Levels
Now with this new technology finds itself well-positioned for growth. The annual revenue growth rate averaged about 4%. Thanks to its new initiatives, that’s now changed for the better. In its last earnings report, MSFT reported over $24.5 billion in quarterly revenues. This represents a 20% increase from the same quarter in 2016.
Earnings have followed suit. Analysts expect earnings on MSFT stock at $3.38 per share for the current fiscal year. They also think earnings will grow at more than 10% per year for the foreseeable future. With this growth and a current price-to-earnings (PE) ratio of about 30, the MSFT stock price has reached all-time highs.
Microsoft also remains one of the most financially stable companies in the world. About $85 billion in debt supplements its cash hoard of over $138 billion. Still, the debt remains a strategic move to take advantage of low interest rates.
Also, a AAA credit rating, rarely seen in corporate America at present, backs up the company and keeps interest paid to a bare minimum.
Final Thoughts on MSFT Stock
It’s this financial stability as well as new lines of business that have returned MSFT stock to a high-growth mode. The company has found other profit drivers besides its declining Windows and MS Office software packages. Platforms such as Microsoft Azure its VR applications have returned revenue growth to double-digit levels.
The revenue growth, as well as its increasing profits, have reinforced MSFT’s reputation as one of the most stable companies in the world. Given the company’s higher growth and renewed sense of purpose, investors can again enjoy outsized gains in MSFT stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
Source : https://investorplace.com/2017/12/msft-stock-old-tech-new-tech/