On April 5, the U.S. Federal Reserve announced a rapid reduction in its massive balance sheet. This caused the stock market rally to halt, and Treasury yields jumped instead. This move also caused mega-cap stocks like Microsoft Corporation (MSFT) to fall. Despite this, we are bullish on the stock.
Microsoft is one of the most reputed tech companies in the world that comes with a solid track record of delivering attractive returns. Over time the company has undergone a strong and long-term uptrend and has served as an anchor stock for many tech investors.
Though recently, it too had suffered from the tech bear market condition to some extent, its sufferings were less extreme compared to that of many other tech stocks. It seems that the market has immense confidence in its resilient business model, relatively speaking.
It is a good time to take a look into it, especially now when the Fed has made it clear that it will hike interest rates and reduce its balance sheet.
Microsoft Corporation is a United-States-based multinational technology corporation that deals in computer software, consumer electronics, personal computers, and many other related services.
The company has been actively moving its customers’ legacy workloads and applications to the cloud and has exposure to multiple software themes in the fields of cybersecurity, data analytics, CRM, ERP, gaming, and many more. Moreover, Microsoft has a tremendous hold over the SaaS Space and also benefits largely from the strength of its Azure IaaS.
Microsoft’s well-diversified business model operates across multiple profitable segments. However, with the advent of the pandemic, its Azure segment got a huge boost. Considering the present industry scenario, it seems like this sector will be a major contributor to the company’s future growth.
As per research by Gartner, the proportion of new workloads deployed in a cloud-native environment will go up from 30% in 2021 to 95% in 2025, thereby providing vast growth opportunities to the companies like Microsoft. Therefore, as the stock is down now, this may be a perfect buying opportunity.
Brent Bracelin, a Wall Street Analyst from Piper Sandler, also has a similar opinion on the Microsoft stock and gave it a buy rating about three months back. He has recommended that growth stock seekers should add Microsoft to their portfolios because of the favorable risk-reward opportunity it has been providing to its investors, especially after the market’s pullback.
Multiple Growth Avenues
One of the primary reasons behind Microsoft’s stability is its diversity of operations. This is because multiple sources of revenue with continuous cash flows ensure that the company can not only survive but also grow and expand non-stop.
Microsoft operates three solidly profitable segments to support its robust growth. As there has been a revival in the use of PCs, especially after the pandemic’s outbreak, its legacy Personal Computing segment has been witnessing respectable growth.
Its Windows 11 provides a great user experience to PC users, and because of the multitasking and productivity advantages its new Snap Layouts provide, more people love it these days.
The company’s momentum across cloud computing and cybersecurity sectors has also been promising. Azure has garnered strong momentum in the hybrid and multi-cloud areas, and the SaaS advantages provided by it have also given it tremendous leverage opportunities for integrating newer productivity tools and automation software in-house.
All these integrations have driven the company’s operating margins largely. Further, its cybersecurity solution is highly valued. There are rumors of a partnership with Google in this space these days.
Strong Financials
Microsoft has got some of the strongest financials in the tech sector. In its most recent results declared back in January, the company’s revenues increased by 20% year-over-year to $51.7 million in the last quarter of 2021, and its operating income also increased by 24% to $22.2 billion during the same time.
Net income came in at $18.8 billion, which has also grown by 21% compared to the last year. Revenue across LinkedIn, Dynamics products, and the Cloud Services segment have shown high growth potential.
Wall Street’s Take
Turning to Wall Street, MSFT stock comes in as a Strong Buy based on 27 unanimous Buy ratings assigned in the past three months.
The average Microsoft price target is $374.88, implying an upside of 32.5%. Analyst price targets range from a low of $320 per share to a high of $425 per share.
Metaverse Play
The metaverse is the next best thing and is predicted to grow into a $678.8 billion industry by 2030 from the $38.85 billion industry it was back in 2021. Microsoft is all set to venture into this world of virtual reality.
The company intends to create an enterprise Metaverse containing the virtual representation of all Microsoft tools, thereby creating a real-time collaboration with the virtual world. Microsoft Mesh is all set to be launched and will be coming with a set of pre-built immersive spaces for holding meetings and for socializing. It will also let its users create avatars and interact with each other.
Microsoft intends to acquire Activision Blizzard (ATVI), the gaming giant, to help it build its own world in the metaverse. Right now, the deal is under intense scrutiny by regulators.
Conclusion
Microsoft is one of the best stocks to hold at this moment to shield one’s portfolio against market fluctuations. The stock has such strength that it could easily pass the bear market pull without losing much of its valuation, in our opinion.
Moreover, the company is poised to grow in the future, considering the plethora of opportunities that are coming for it. It also pays a $0.62-per-share dividend. Besides, the several steady streams of its revenues have always ensured the company with the availability of respectable cash flows.
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