Microsoft Corporation Has Plenty of Potential in 2018
December 27, 2017 – by Richard Band
Microsoft Corporation (NASDAQ:MSFT) has come a long way since the hazy days when Steve Ballmer was running the software giant.
Back then, it was all about legacy systems, Windows, Word, Excel and some nascent enterprise networking software. Its only real lock was the royalty payments it was generating on selling its software packaged into virtually every desktop and laptop on the market — and Apple Inc. (NASDAQ:AAPL) machines of course.
Today, desktops are dead or dying, networks have moved to the cloud, mobility is the new necessity and there’s a plenty of robust competition in the software as a service (SaaS) market. For a while, it didn’t look like MSFT was going to be able to pivot to the next iteration of the Digital Age.
When Ballmer announced he was buying first-generation mobile phone maker Nokia in 2013, it seemed like a flailing attempt to prop up the image of MSFT that was losing stature. It was also the kiss of death for Ballmer, as the merger meant an immediate impairment charge of $7.6 billion (Microsoft paid $7.9 billion) and about 7,800 layoffs in the first year of the acquisition.
By February 2014, Satya Nadella took the CEO helm and has transformed MSFT in the nearly 4 years he has been running the show.
After a few attempts to salvage something from the mobile side, he has more or less buried mobile. However, he has built an incredible cloud storage business — Azure and Office365 platforms — that is even making Amazon.com Inc (NASDAQ:AMZN) nervous. Azure has seen its revenue grow by triple digits for 13 consecutive quarters.
MSFT is now also building hardware that is getting a lot more attention, even from AAPL devotees. It has transitioned its software to a subscription model that has seen it transition successfully and keep it one of the most popular software firms in the business.
And recently, it cut a deal with mobile chipmaker extraordinaire Qualcomm Inc (NASDAQ:QCOM) to put QCOM chips in its new line of Surface laptops. That means MSFT will now have its Windows platform available on mobile devices, and directly compete with AAPL and Google.
What’s more, the Surface devices are gaining more attention from frustrated Apple users that aren’t seeing the innovation that they used to expect from Apple products.
All these trends bode very well for MSFT stock’s 2018 potential. MSFT stock will finish 2017, up around 37% and delivering a solid, nearly 2% dividend yield.
With most of the talk in 2017 being focused on AMZN and its rise as omnichannel retailer and the collapse of traditional retailing, MSFT has been chugging away beyond the spotlight.
And that’s great news for investors looking for blue-chip tech stock that still has plenty of growth left, but little of the premium.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.