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Microsoft: Leading The Cloud Software Market

Feb. 08, 2021 10:17 AM ETMicrosoft Corporation (MSFT)13 Comments
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Khaveen Investments


  • Microsoft is one of the largest technology companies globally, with a strong market leadership across various market segments and a diverse range of products enabling the digitization trend.
  • The company's growth is attributed to its key segments that enjoy dominant market positions with Microsoft Azure cloud, Office 365, and Windows OS accounting for 70% of total revenue.
  • Besides its key segments, its tail-end segments provide diversification benefits and enable strong product integration, enhancing the Microsoft ecosystem.
  • From a macro perspective, the recovery of enterprise IT investments after a sharp decline in 2020 could prove to be a major tailwind for the company in 2021.

microsoft stock

Source: Microsoft

Headquartered in Redmond, Washington, Microsoft Corporation (NASDAQ:MSFT) is a multinational technology company that develops and sells software products & hardware devices across various market segments. The company has a wide range of software products such as operating systems, cross-device productivity applications, server applications, business solution applications, desktop and server management tools, software development tools and video games. On top of that, it also designs and sells PCs, tablets, gaming consoles.

Its revenues are concentrated among three main segments which account for more than 70% of its revenues. These segments are the server products, office products and windows segments which the company has a strong market position with dominant market share. In server products, Microsoft Azure growing at 49% YoY last year and is competing fiercely against market leader Amazon (AMZN) by gaining market share and could reach parity within the next 5 years. Meanwhile, Office 365 is poised to grow further as businesses digitize workflows and emphasis productivity benefits. Windows 10 is proving to be the company's most popular OS update with the share of Windows 10 growing against previous generation software.

Complementing its core product segments, the company's products in gaming, search engines, social networking, devices and enterprise services not only provides diversification benefits to its revenue streams but also enhances the overall Microsoft ecosystem with integrative products and services. Another key driver highlighted is the anticipated recovery in IT spending by enterprises after experiencing a sharp decline of 7.3% in 2020. Overall, we believe Microsoft's growth is supported by secular trends of digitization from businesses including the migration to cloud-based workloads which the company has a diverse range of highly capable products.

Market Leadership & Superb Growth of Core Segments

Although Microsoft has exposure to various market segments, it still relies heavily on three main segments which

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Khaveen Investments profile picture
Khaveen Investments is a Global Macro Quantamental Hedge Fund managing a portfolio of globally diversified investments. We have interests in 100+ investments across multiple asset classes, countries, sectors and industries. Our investment approach takes both a top-down and bottom-up approach encompassing macro-economic, fundamental, and quantitative analysis. We serve accredited investors throughout the globe, which include HNW individuals, SMEs, associations, and institutions. Our investment managers have decades of investment experience between them, with research expertise in emerging technologies such as Artificial Intelligence, Cloud Computing, 5G, Autonomous & ElectricVehicles, FinTech, Augmented & Virtual Reality and the Internet of Things.www.khaveen.com

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in MSFT over 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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