The stock has dipped in recent weeks but that’s all the more reason to take notice of Microsoft (Microsoft Stock Quote, Charts, News, Analysts, Financials NASDAQ:MSFT), which is still on pace for big gains for 2021. Short term ups and downs aside, Jennifer Radman of Caldwell Investment Management thinks Microsoft’s ability to stay vital to almost every functioning business’s needs is what investors should be focusing on.
The $2.4-trillion market cap behemoth that is Microsoft has been delivering strong returns for so long it’s almost par for the course to say that once again the stock is firmly in the black for another year. Microsoft started 2021 at $222 per share and is now trading around $330, which makes for an almost 50 per cent gain year-to-date. That’s after 2020’s return of 41 per cent, stacking up MSFT very well against the rest of its Big Tech counterparts.
Microsoft is rallying early this week but the stock is still off a bit from its highs set in November. Radman says the dip has little to do with Microsoft’s recent performance.
“[There’s] nothing company-specific that we see [about Microsoft]. In fact, a lot of the the business and fundamentals are performing very, very well here. We’ve been adding to the position lately,” says Radman, head of investments and senior portfolio manager at Caldwell, who spoke on BNN Bloomberg on Monday.
“I think on some of the weakness, [it’s] a very macro driven type of a market with broad sector baskets or different factors being pressured lately, and so technology being one of those, I think it’s more to do with that and [Microsoft] being an initial COVID beneficiary.”
Currently jockeying with Apple for status as the world’s most valuable company, Microsoft has perhaps taken less of the public’s imagination when it comes to technology-based revolutions in recent decades. Certainly, there have been no iPhone-level gadgets coming from Microsoft’s PC and hardware nor has the company asserted a stranglehold on a domain like online advertising as have Googles and Facebook or e-commerce like Amazon.
But turn to the realm of productivity software and services for businesses and Microsoft’s dominance becomes very clear. The company reported $15.0 billion in revenue, up 22 per cent year-over-year, in its Productivity and Business Processes segment for its most recent quarter, Microsoft’s fiscal Q1 2022, delivered in late October. That segment is comprised of Microsoft Office, Dynamics and networking site LinkedIn. For the same quarter, the company’s Intelligent Cloud segment, featuring Azure, Windows Server, GitHub and other server products and services for business, grew by 31 per cent year-over-year to $17.0 billion. (All figures in US dollars.)
“We delivered a strong start to the fiscal year with our Microsoft Cloud generating $20.7 billion in revenue for the quarter, up 36 per cent year over year,” said Amy Hood, executive vice president and CFO, in a press release.
Even Microsoft’s third segment, More Personal Computing, is growing, with Windows Commercial products up 12 per cent for the fiscal Q1 and Xbox eking out a two per cent gain.
Microsoft’s first quarter also featured net income of $17.5 billion or $2.27 per share, up about 25 per cent year-over-year, on total revenue of $45.32 billion, up 22 per cent. Analysts had been calling for earnings of $2.07 per share and revenue of $43.97 billion.
Microsoft’s strength in the productivity technology sector is about to get bigger, too, as the company’s $16-billion deal to buy Nuance Communications makes its final push through regulatory scrutiny. A health tech company, Nuance’s acquisition would bolster Microsoft’s positioning in that field, with Nuance’s transcription technology currently used in the majority of hospitals in the United States.
“Nuance provides the AI layer at the healthcare point of delivery and is a pioneer in the real-world application of enterprise AI,” said Satya Nadella, CEO, Microsoft, in an April 12 press release. “AI is technology’s most important priority, and healthcare is its most urgent application. Together, with our partner ecosystem, we will put advanced AI solutions into the hands of professionals everywhere to drive better decision-making and create more meaningful connections, as we accelerate growth of Microsoft Cloud for Healthcare and Nuance.”
Radman said it’s Microsoft’s adept moves in making its products and services essential to all forms of business that should make investors feel confident in buying the stock.
“Microsoft’s positioning within the ability for companies to function and operate is very, very strong,” Radman said. “They’ve pivoted very successfully to their cloud platform. Now, the next big growth area is the automation of ongoing tasks.”
“Given how ingrained they are within corporations, they’ve been successfully able to create these new growth avenues and so [there’s] a lot of a lot of runway there,” she said. “We continue to like this stock here.”