Microsoft: Leading For Good Reason

Jan. 08, 2019 9:15 AM ETMicrosoft Corporation (MSFT)AAPL, AMZN, META, GOOGL, JNJ33 Comments
Nima Abbaszadeh profile picture
Nima Abbaszadeh
419 Followers

Summary

  • Microsoft's transition to recurring revenues and cloud-based services under Satya Nadella has revitalized the company.
  • The company features broad diversification and quality execution within the technology sector.
  • Microsoft's AAA credit rating, backed by a strong balance sheet and underlying business, provides a sense of security for investors.
  • A lack of regulatory overhang will continue to contribute to the success of the company's stock.
  • While there are risks present in Microsoft, they are largely under the company's control.

(Source: Nextgov)

Investment Thesis

2018 has certainly been a year to remember for Microsoft Corporation (NASDAQ:MSFT). For one, the company's stock returned a gain of nearly 19% for its investors, easily outpacing the S&P 500 as well as many of its peers. Microsoft also saw a record year for both revenues and earnings and managed to close out the year as the world's most valuable company, a title it hadn't held since 2003.

I expect 2019 to be a continuation of the company's success in 2018; in this piece, I explain the forces behind Microsoft's resurgence, and why its combination of superior diversification and execution, triple-A credit rating, and lack of regulatory overhang make MSFT a top pick for 2019. I will also measure MSFT's performance against its peers and evaluate the company's stock from a technical perspective to determine where it could head from here, as well as highlight some potential risks in Microsoft and its stock.

Investment Highlights

Satya's Successful Transition

(Source: CNBC)

Since taking over as CEO of Microsoft in 2014, Satya Nadella has been at the forefront of Microsoft's transformation and modernization from traditional software sales to a company focused on Software as a Service (SaaS). This transition has revitalized Microsoft's business model and investor perception around the company; by making the shift to a subscription-based recurring revenue business model, Microsoft's revenue base has become less cyclical, more sticky, and more stable and predictable. According to analysts from Credit Suisse, recurring revenue streams now account for roughly 30% of Microsoft's total revenues and could reach more than 50% in four years' time, as well as over 65% by as early as fiscal 2025.

The second of Nadella's major accomplishments at Microsoft has been his spearheading of the company's advances into cloud-based services through the acceleration of

ChartMSFT Total Long Term Debt (Quarterly) data by YCharts

ChartMSFT Market Cap data by YCharts

ChartMSFT data by YCharts

ChartMSFT data by YCharts

This article was written by

Nima Abbaszadeh profile picture
419 Followers
I am a young investor and undergraduate student at Stony Brook University, with a passion for the world of investing and financial markets. I currently manage a long-only portfolio of US large-cap equities, with a focus on finding quality companies to buy and hold for the long term. I follow a wide range of industries, though the majority of the companies in my portfolio are in the health care, industrial, and technology spaces. My background is more rooted in technical analysis, though my goal with this platform is to improve in my ability to analyze a company fundamentally, while taking the time to learn from others in the Seeking Alpha community. I wish to have a positive impact on the investing experiences of my readers, and that we can all meet our finance and investing objectives. Disclosures: Long AAPL, ABBV, AMAT, AMD, AMZN, APD, AWK, BA, BDX, BRK-B, CAT, COST, CSCO, DIS, GOOGL, HCA, HD, HON, JNJ, JPM, LUV, MLM, MMM, MSFT, NKE, NUE, NVDA, PG, SWK, SYK, TMO, TXN, UNH, UPS, V, VZ, WM.

Disclosure: I am/we are long MSFT, AMZN, GOOGL, JNJ. 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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