I am buying more MSFT stocks. Why?

Overview

Starting as a creator of Windows operating systems, MSFT quickly expanded into software, support services, devices, creating cloud-based solutions. MSFT significantly benefited from the “new normal” of working and learning from home. More people shifted to MSFT Teams as the company saw its sales going up and expected to increase further in the foreseeable future. MSFT stock has generated a total return of more than 400% over the past five years, thanks to CEO Satya Nadella’s leadership. Under Nadella, Microsoft expanded its cloud services. MSFT’s Azure cloud computing service facilitates the creation, testing, deployment, and management of services and applications through its data centers. Though Microsoft is known for its software and video games, this tech giant has also made considerable inroads in the cloud space. 

The JUICE

Microsoft’s commercial cloud revenue rose to over $50 billion in fiscal 2020. That business includes cloud-based Office 365, its CRM (customer relationship management) platform Dynamics, and its cloud infrastructure platform Azure. Azure is a strong competitor to Amazon Web Services (AWS) in the cloud infrastructure market.MSFT recently beat Amazon to secure Pentagon’s contract for upgrading its cloud infrastructure, which is a solid door for future opportunities as the demand for cloud infrastructure expands. Grand View Research estimates the global cloud computing market could still grow at a compound annual growth rate of 14.9% between 2020 and 2027.

Microsoft will launch its next-gen Xbox gaming consoles next month. The Series X will cost $500, while the cheaper, less powerful, and all-digital Series S will cost $300. In addition to that, Microsoft recently acquired ZeniMax to strengthen its game publishing division. Microsoft’s gaming business, which accounted for 8% of its top line last year, could become a significant growth engine again in fiscal 2021.

Technical Valuation

MSFT’s revenue increased 13% year-over-year to $38 billion in the fiscal fourth quarter ended June 2020. The increase in revenue was led by the company’s cloud service segment Azure, Microsoft’s Surface, and Xbox revenues. The market expects its revenue to grow 8% in the current quarter and 9.6% in the current year.

MFST announced a quarterly dividend of $0.56 per share to be paid in December. Over the past six years, MSFT has issued more dividends than most other dividend-issuing US stocks in the StockNews.com universe.

Based on the current valuation, Investors might be reluctant to buy Microsoft’s stock, but I believe it could still head higher in the next five years. I think Microsoft’s resilience throughout the pandemic, its commercial cloud business’s ongoing growth, and its upcoming gaming tailwinds all justify the current valuation even with a slight premium.

As usual, I am not a financial advisor, and this is not advisable for you to start dwelling in stocks trading. The thought process above is solely to validate my understanding before purchasing any equity. I am still learning the process of evaluating and identifying opportunities in the stock market. By doing this, I am creating a structure for my brain to follow and not be an impulsive buyer or act emotionally when the market is against me. It is a journey I thought of worth sharing with any interested audience.