It's been fun to see the broader market finally begin to see the real value in some of these "boring" old tech names. Countless investors continue to protest that since these stocks have been "dead money" for years (really, they were just growing into the extreme valuations that they once had), but as these firms vigorously protect their traditional markets while expanding into new markets, short sellers in these stocks banking on "the death of the PC" or some other such nonsense perpetuated by the marketing department(s) of Apple (NASDAQ:AAPL) and ARM Holdings (NASDAQ:ARMH) will probably be sorely disappointed. Microsoft (NASDAQ:MSFT) has awakened and quite frankly, the shorts are likely in for a lot more pain.
Sure, Microsoft Has Messed Up - Who Hasn't?
It was pretty clear that Microsoft was hastily reacting to the Apple iOS and Google (NASDAQ:GOOG) Android incursions. As a result, they released the utterly pointless Windows RT (although I do see it as a hedge/incentive for Intel (NASDAQ:INTC) to take the tablet chip space seriously), and tried to force the "Metro" UI on traditional PC/notebook users.
I fundamentally believe Microsoft has the right idea that the line between traditional notebooks and tablets will blur rather quickly to the point that they will be interchangeable, but the execution and method by which Microsoft attempted to facilitate the transition left much to be desired. Windows 8 is mostly Windows 7 but with a touch-enabled Start screen, but the UI even in desktop mode just removed a number of key familiar elements such as a "start button" and a "boot-to-desktop" capability that just made the transition jarring for most mainstream users.
People don't like change. The trick is to add to the goodness that exists but at the same time offer more features. This is why Windows RT will never succeed in anything outside of a 7" tablet, and even then vendors are likely to try to sell the full Windows 8 experience that can be had in your pocket, rendering Windows RT ultimately useless. People like the notion of the traditional desktop and they like their legacy/native applications. If Windows "Blue" can give the user the best of both worlds in a seamless fashion, then it has the chance to be a hit of epic proportions.
The Street Believes That The Woes Are Temporary
After the guy probably responsible for some of these terrible decisions (Steve Sinofsky) left, it seems that Microsoft has been somewhat humbled and is now making rational decisions. The recent rise in the stock price (and the squeezing of the short sellers who thought that it was "in the bag") reflects the Street's optimism that with Windows Blue, coupled with new hardware from Intel (that seems to kill any argument in favor of using ARM-based chips in stripped-down Windows), should help to reinvigorate Windows-based computing device sales in the consumer space as well as in the business space.
My bet all along was that the Street would eventually believe the story here, and it seems to be panning out. Intel, Microsoft, and even AMD have been rallying hard in anticipation of the new iteration of Windows, and quite frankly, it's hard not to share in that optimism.
Shorting Microsoft is a terrible idea in this environment. Not only is the dividend yield infinitely better than most treasury bonds which means that the dividend-growth hounds will be on this stock like white on rice, but the company has been consistently growing its top and bottom lines year after year, and it looks to me that going forward this isn't going to change.
When Microsoft dips, or when/if the broad market corrects, consider getting on board the Microsoft train before it's too late. And if you're short? Use any such opportunity to cover your position - you will probably lose your shirt if you don't.
Additional disclosure: I am short ARMH.