This is not your parents’ Microsoft, Paul Harris says

By all accounts US tech giant Microsoft (Microsoft Stock Quote, Chart, News NASDAQ:MSFT) has had a whale of a year but for investors thinking that the meteoric rise is too much for a old standby stock like Microsoft, portfolio manager Paul Harris wants you to think again.

“We own Microsoft and we’ve owned it for a long time,” said Harris, partner at Harris Douglas Asset Management, speaking on BNN Bloomberg on Thursday. “I think that one of the issues with Microsoft is that there is a different way of thinking about computing now and the cloud is it.”

“That’s why you have to think about Microsoft differently now — not about it sitting on your desk — with cloud you can make a factory more intelligent, a building more intelligent, by accumulating that data and using that data more effectively to run that particular place. That’s what the cloud is doing, and Microsoft and AWS are the two big players in it,” he said.

Microsoft has been on fire this year, with its share price now up 54 per cent and ready to mark eight years in a row of positive growth. Unlike other big tech names like Amazon and Facebook, Microsoft has been a consistent climber in 2019, with no indication yet of slowing down.

The company recorded revenue and earnings beat with its latest quarterly financials, its fiscal first quarter, delivered in late October, even as management’s guidance going forward was under analysts’ estimates.

Microsoft posted a top line of $33.06 billion, higher than the expected $32.23 billion, on earnings of $1.38 per share, also better than the consensus $1.25 per share. (All figures in US dollars.)

Microsoft’s Azure cloud segment recorded a 59-per-cent revenue growth rate for its Q1/2020, which was nonetheless a step down from the 64-per-cent growth rate over the previous quarter, a continuing trend of incrementally lower growth for Azure.

The company’s More Personal Computing segment, which is made up of Windows, Surface, ads and gaming, is still key for Microsoft, bringing in $11.13 billion in revenue for the quarter. 2020 will feature significant new hardware releases from Microsoft, including a next-generation Xbox and devices and displays for its Surface product line.

Harris says the perception that Microsoft is a mature stock with potentially less upside than more high-flying tech names is now outdated.

“It was a mature stock and then they found their footing and now that’s why it’s doing so well,” Harris said. “That’s what you’ll continue to see where there’s good growth in [the cloud], not only because people are moving to the cloud but because they’re generating a lot of different products that will help people and companies be more productive. And I think that Microsoft is going to be one of the leaders in that.”

On his company’s fiscal Q1 performance, Microsoft CEO Satya Nadella said the world’s leading companies are choosing Azure “to build their digital capability.”

“We are accelerating our innovation across the entire tech stack to deliver new value for customers and investing in large and growing markets with expansive opportunity,” Nadella wrote in a press release.