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The Trillion Dollar Club: Trading Microsoft’s Shares

October 6, 2021
by Leon Marshall,

Article Recap

Microsoft is one of the companies in the Trillion Dollar Club. Trading the tech giant's shares has its own unique characteristics.

As technology enterprises continue to grow, two of them – Apple and Microsoft – are now leading The Trillion Dollar Club. On Tuesday, 22 June, Microsoft Corp. became the second American company to join the $2 Trillion Club by breaking through the second trillion market cap milestone. It happened within just two years, compared to the 33-year struggle from its initial public offering (IPO) to reach the first trillion.

Microsoft’s path to a $2 trillion-dollar company

On 4 April, 1975, Paul Allen and Bill Gates founded Microsoft. At the time, the company was focused on the development and selling of BASIC interpreters for the Altair 8800, one of the first PCs. Microsoft’s dominance was established after they went into the operating system market with their system MS-DOS in the mid-80s and later, Microsoft Windows.

Most of this so-called productivity software comes from applications the world uses on a daily basis – a package called Microsoft Office or Microsoft 365 (Word, PowerPoint, Excel, Teams, SharePoint, etc.). It makes it possible to work together from any place in the world with a set of tools that are affordable and well-integrated. Pandemic times only fastened the growth of said services. For example, the demand of Microsoft Whiteboard in Teams – a tool for remote collaboration, has increased 12-fold in monthly active users over a year. Along with the growth of the usage of other productivity services that the company offers, in the first half of FY21, the segment saw a 12% spurt, driven by 21% growth in commercial revenue of Office 365.

The future is cloudy

When cloud services were still on the rise, Microsoft took advantage of that and switched from the software-orientated business to becoming a cloud-focused company. Microsoft Azure is right behind Amazon Web Services (AWS) as a cloud computing service with over 20% market share at the end of 2020, a 5% gain over the previous two years, compared to AWS’ drop from 33% to 32% over the same period.

Using their hybrid cloud solution that combines data centers and public clouds, Microsoft easily became the go-to for most users. Coupled with Azure Arc’s one-location-for-all-resources, be those on a cloud of Microsoft’s or not, a juicy offer was born for clients who wish to manage all types of cloud environments in one place.

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Microsoft’s gaming division has leveled up

This same approach is central to the latest video game consoles Microsoft launched in November 2020 – Xbox Series X | S, with the X focusing on performance and the S on being a budget option. During an earnings call, CEO Satya Nadella confirmed this to have been Xbox’s “most successful” launch with “the most devices ever sold in a launch month.” As a result, gaming revenue rose 38%, to $2.3 billion, in the first half of FY21.

It doesn’t stop just there, as the tech giant focuses on AI and automation just as much in order to invest in the future. Given the lawsuit in 1998-2000 that put Microsoft behind in the social media, search engine, and mobile software, the strategic moves Nadella took goes to show that the company is careful not to miss the second wave of tech advancement. Windows 11, Microsoft’s first OS since 2015’s Windows 10 (that was supposed to be the last Windows OS to ever come out) is perhaps proof of its shift in strategy to compete with other titans in the industry relying more on a cloud- and app-centric approach.

MSFT – the numbers

In recent years, Microsoft has become seemingly more stable than ever, with its productivity and cloud computing business that have driven revenue growth and market interest. An upward trend in revenue, free cash flow, and gross margin are the first places to look. The latter, going into a double-digit category of compound annual growth, and the former, rising to 68% from 65% in just 12 months. Its debt of $60 billion is overshadowed by the $132 billion in its belly from long and short-term investments.

Stock is going into historical highs, as shows the valuation of 12 times sales and 36 earnings. MSFT jumped from $265.79 to $289.10 in just over Q3FY21. If this trend continues, it could close at nearly $320 by the end of the year. Even compared to Apple’s 1% and Amazon’s 7% shares gain, Microsoft has gained nearly 20% in stock price this year alone. The company’s shares seem like they’re some of the most popular assets on the market right now. With Eightcap, traders can go long or short on them via the MetaTrader 5 platform.

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