Tech Titan Microsoft Rising ... For Now

| About: Microsoft Corporation (MSFT)

The technology titans could have a new leader, for now anyway. Microsoft (NASDAQ:MSFT) has swelled more than 22% since the start of the second quarter. In comparison, Google (NASDAQ:GOOG) is up just 7.3% and Apple (NASDAQ:AAPL) is up just 4.5% for the period. The difference in returns is surprising given that Microsoft isn't exactly known for innovation. More to the point, both Apple and Google have been buzzing with the prospect of wearable technology -- namely the Apple iWatch and Google Glass -- buzz that normally translates into bullish stock momentum. Apple CEO Tim Cook says that wearable tech could be "profound" -- but it certainly isn't showing up on stock returns, or at least not yet.

There are two big questions -- Why and how much higher will Mr. Softee (so-dubbed for its stock ticker "MSFT") climb?

Microsoft Rising

Microsoft is basically dividend into four segments. Close to 30% of its revenue comes from its largest segment, its Business Division. Next, is the company's server platforms, which make up almost 25% of its revenue. Microsoft Windows comes in third with 22.5% of its revenue. The balance is made up of its online services division, home and entertainment (Xbox anyone?), and other. Microsoft is currently looking at restructuring its operations into becoming more of a "devices and services" company -- an aim, which puts tablets and cloud computing square in the company's crosshairs.

How High

Microsoft is currently trading at $34.80 -- that is just over 2% higher than the company's one-year target estimate of $34.08 -- and there is really no reason to think the tech titan is going to keep rising.

The creator of Windows and Office is really working hard to gain a foothold in the tablet market, so much so that it has begun discounting Windows RT, a tablet-version of Windows 8, but its efforts just don't seem to be working. Hewlett-Packard (NYSE:HPQ), one of the largest PC maker in the world, has already said that it has no plans to create a Windows RT device while Samsung (SSNFL.PK) did develop a Windows RT tablet then opted to only sell in a fraction of its markets.

Breaking a Bad Habit

Microsoft has made some efforts toward the cloud -- namely its newest version of Office, called Office 365, operates from the cloud -- but with limited success. The new version of Office isn't nearly as developed as Google Drive or Apple iCloud, both of which offer integration for their respective document services and provide ways to collaborate.

With their enhanced functions and much lower pricing, I have a sneaking suspicion that the only reason Google Docs and Apple Pages haven't caught on more readily is that Microsoft Office was such an early market leader that it became a default formatting option -- almost like the way many people refer to adhesive bandages as "Band-aids," soda as "Coke," or facial tissues as "Kleenex."


Microsoft has gone pretty far on investor momentum and current consumer habit for its products -- but these are not good reasons to make an investment. Looking to the long term, Google or apple are much better investments.

Google is currently trading at $859.89 on a 52-week range of $556.52 to $920.60 and carries a one-year target estimate of $929.33 -- making for a projected return of roughly 8% over the next year and beyond that who knows? Aside from Google Glass, the company is pursuing several opportunities, least of which is its recent stake in peer-to-peer lending (read more about that here).

On the other hand, Apple offers a greater potential for return, but it also has greater risk. Right now, the company is trading at $437.30 on a 52-week range of $385.10 to $705.07 with a one-year target estimate of $540.86 -- that's a potential return of almost 24% over the next 12 months. Apple has been hit hard lately -- tax scandals and patent infringement are bound to take their toll. I'm not sure if Apple will quite reach the heights consensus estimates are predicting but investors should be able to buy in closer to $400 and feel pretty confident about a longer-term position, especially with the upcoming launch of iRadio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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