Microsoft (Quote, Chart NASDAQ:MSFT) may not be a member of the exclusive FAANG group of tech stocks but there are more than a few reasons to be bullish about the company, says Chris Stuchberry of Wellington-Altus Private Wealth, who thinks that Microsoft’s transition from traditional software company to cloud services giant has been a true success.
The proof is in the pudding, or in this case, Microsoft’s latest quarterly report which beat analysts’ expectations on both earnings and revenue and gave better-than-expected guidance for next quarter’s revenue. Investors honed in on Microsoft’s Commercial Cloud, which includes the commercial versions of Office 365 software, Dynamics 365 business software and its Azure public cloud. That segment took in $6.9 billion over MSFT’s fiscal fourth quarter of 2018, representing 53 per cent year over year growth which itself beat expectations. (All figures in US dollars.)
“We had an incredible year, surpassing $100 billion in revenue as a result of our teams’ relentless focus on customer success and the trust customers are placing in Microsoft,” said Satya Nadella, Microsoft’s CEO in a press release. “Our early investments in the intelligent cloud and intelligent edge are paying off and we will continue to expand our reach in large and growing markets with differentiated innovation.”
Stuchberry says Microsoft is really rolling at the moment. “The investment thesis on Microsoft is very good,” says Stuchberry, portfolio manager at Wellington-Altus, to BNN Bloomberg. “They converted from software to cloud computing and they did a fabulous job of it. The stock price has shown you that.”
Since Nadella took the reins from then CEO Steve Ballmer in 2014, Microsoft’s share price has tripled. In 2018, alone, MSFT has risen more than 24 per cent, while its market capitalization has climbed over the $800-billion mark.
Stuchberry says even though Microsoft’s next act in terms of growth prospects is still unclear, there’s a lot for investors to be positive about.
“I think you’re probably in good shape,” he says. “A big part of that [cloud computing] transformation is behind you, so what’s forward? I don’t have that yet. I think that they could grow some dividends, I think that they could easily do buy-backs, their balance sheet is fabulous. Not a lot of reasons why you wouldn’t buy it, so that’s probably a reason to buy it.”