How High Could Microsoft Stock Go?

Microsoft Corporation (NASDAQ:MSFT) is a long-standing technology giant. This Redmond, Washington-based company founded by Bill Gates and Paul Allen set the standard for enterprise and home computing with its Windows operating system.

It grew at the end of the 20th Century through Gates’ aggressive business tactics. Today, it’s a trillion-dollar juggernaut with revenue coming from entirely different places than it used to.

So, how high could Microsoft stock go?

Long before Amazon (AMZN) and Google (GOOGL) dominated headlines as web-based tech businesses, Microsoft was the titan on the block. Its long-time rivalry with Apple Inc (NASDAQ:AAPL) had them switching every decade for the past 30 years as the most valuable companies in the world.

But Google muscled into Microsoft’s Office and Windows Phone businesses. Its Play Store is the default app store in a large portion of smartphones, tablets, smart cars, and other platforms. And remember Zune?

Microsoft has as many strikeouts as grand slams, and it’s involved in a real-life game of thrones for the world’s most valuable company. We hit Ctrl-Alt-Delete and see if Microsoft’s components are running smoothly or if it will leave investors “blue screened.”

Microsoft: The Trillion Dollar Company

There were four trillion-dollar companies in the U.S. at the start of 2020: Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), and Microsoft (MSFT). When the stock market came crumbling down in March 2020, Microsoft stood as the lone trillion-dollar company left in the country.

This says a lot about investor confidence in the tech giant, even as the world faced its most perilous economic conditions in history.

Microsoft has worked tirelessly over the past 40 years to plant a flag in new revenue streams while using its big pockets to keep competition at bay. It started the millennium with antitrust suits regarding how it leveraged free tools like Word, Internet Explorer, and Windows Media Player to crush the competition.

When you consider companies truly “too big to fail,” Microsoft is surely included in that list. The company’s Windows OS remains a foundational component of everything from U.S. government systems to NASA, school districts, businesses, and every other corner of society.

Unlike Apple, Amazon, and Alphabet, Microsoft isn’t the target of antitrust regulators in 2020. That’s despite it using its old playbook to stop Zoom and Slack from competing. The latter sought refuge in a buyout from Salesforce to remain relevant.

It’s more than an OS – Microsoft’s tech ecosystem grew over the past twenty years. It’s now a dominant force in gaming, cloud computing, enterprise productivity, web development, and more.

You can thank CEO Satya Nadella.

Microsoft Strategy Shift

Nadella took over Microsoft from Steve Ballmer in February 2014. Since then, he pivoted the company’s resources to focus on a mobile-first mentality.

Instead of focusing on devices (like Ballmer did with his disastrous buyout of Nokia’s phone business for the now-dead Windows Phone line), the push was for software-as-a-service (SaaS).

Microsoft’s biggest failure in the 2000s and 2010s was not reacting fast enough to Google’s cloud-based productivity suite. By rolling Gmail, Docs, Sheets, and more into the market, the company made it clear it aimed for Microsoft’s crown.

Today’s Microsoft is all about subscriptions, and even the Xbox One console launch included a unique subscription payment model. It rolled its Office, Outlook/Hotmail, and other cloud-based services into one Microsoft 365 subscription.

This licensing model proved effective, and the company reported full year revenue growth for its fiscal 2020. It also pours money into research and development, with artificial intelligence (AI), internet of things (IoT), and blockchain projects under development on its Azure cloud platform.

In fact, Azure is where it takes the fight to Amazon.

Azure Takes On Amazon AWS

One of Amazon’s most profitable revenue streams is its Amazon Web Services (AWS) platform. This blazing fast data center has bandwidth to support heavy streaming services and attracts some of the biggest names on the block.

Netflix (NFLX), Twitch, Facebook (FB), BBC, Baidu (BIDU), Twitter (TWTR), Adobe (ADBE), and even Microsoft’s own LinkedIn all use AWS for their cloud-based applications to stream content to large user bases.

But Microsoft’s Azure is even more profitable. Netflix is Amazon’s biggest spender at $19 million per month, which wouldn’t even place it in the top 10 of Azure spenders.

Verizon (VZ) spends nearly $80 million per month, while MSI Computer, LG Electronics, CenturyLink, and Wikimedia Foundation all have hefty monthly bills too.

Although its growth is slower than Amazon’s, it’s already an industry giant that’s well ahead of the pack. But is it valued too high?

Is Microsoft Valuation Too High?

Microsoft started 2021 with a market cap over $1.6 trillion, about $600 billion short of long-time rival Apple’s $2.20 trillion valuation.

Its share prices fell to a 52-week low of $132.52, before rebounding to a high of $232.86 and settling just over $200.00 per share by year end.

The company has a P/E ratio around 35x, below Apple’s 40x though just above Alphabet’s 33x. None compare to Amazon’s hefty premium of 92.94.

It’s still trading on the high end of its historical value, and Microsoft did its best to prop up the DJIA, S&P 100, and S&P 500 in 2020. Much of this is because investors believe it will contribute in a large way to the 175 zettabytes of data bandwidth estimated to keep autonomous vehicles, robots, and other devices online in 2025.

How High Could Microsoft Go? The Bottom Line

Microsoft is a tech giant that stands with only a handful of others as trillion-dollar American companies. It’s in full competition with each of the others for dominance in different tech sectors of hardware and software. But it’s been in the game for a long time and faces fewer legal issues in the pipeline.

This has bullish investors ready to pour money in and hold while their 1.04 percent dividend yield keeps them liquid. Microsoft is a long-standing foundational tech company that has enough major organizations relying on its software and data centers that it could be too big to fail.

Whether investors remain happy with its performance versus rivals like Apple, Amazon, and Alphabet remains to be seen.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.