Microsoft’s dominance in software development is likely to keep the company thriving, and the company has provided enormous gains over the long term.
Many tech companies saw significant drops in stock value during last year’s sell-off. Microsoft (MSFT -0.37%) stock was not immune to the market downturn of 2022, with shares dropping by roughly 29% despite the company’s dominant market position. In spite of the difficult economic climate, the figure shows that the company beat many of its competitors.
In 2022, Microsoft’s substantial market share in multiple high-growth industries kept the company’s business expanding, demonstrating the company’s resilience and stability.
Shares of the company have risen by 20% so far this year, making it a great time to familiarize yourself with this recovering tech giant. There are three things that astute investors already know about Microsoft.
1. Microsoft has a proven track record of expansion
Microsoft, the company behind such colossal names as Windows, Office, Xbox, and Azure, has amassed a $2.15 trillion market cap, second only to Apple. The company’s success in the OS market (where Windows holds a commanding 74% market share) has been leveraged over the years to propel the growth of its other brands, allowing them to become industry leaders in productivity software, video games, and cloud computing.
Microsoft stock has risen by 226% in the last five years and more than 900% in the last decade. Even though it went public in 1986, the company has continued to grow at a rapid clip, suggesting it has plenty of room to grow in the years to come. Microsoft’s annual revenue increased by 79% to $198 billion since 2018, and the company’s operating income increased by 138% to $83 billion during the same time period.
Microsoft is an attractive investment now because of its history of spectacular stock-price appreciation.
The importance of putting money into promising new technologies
Microsoft has been successful in large part due to its commitment to looking ahead and investing in promising ideas before they reach maturity. In 2010, Microsoft launched Azure, its cloud computing platform, entering a market that has since grown to be worth approximately $484 billion. Since the introduction of Azure, the market has exploded, along with the demand for more complex websites to accommodate rising consumer data consumption and the prevalence of high-powered activities like video and music streaming.
In the wake of the recent COVID-19 pandemic, many businesses migrated their operations online to accommodate hybrid work styles, leading to a boom in cloud computing. Microsoft, meanwhile, is reaping the benefits of this expansion, with second-quarter 2023 Azure revenue up 31% year over year.
In 2019, Microsoft invested $1 billion in OpenAI, the company responsible for the artificial intelligence (AI) chatbot ChatGPT, as part of its commitment to supporting emerging technologies. Microsoft invested an additional $10 billion in OpenAI after the company stunned the tech world in November 2022 with the release of ChatGPT and its sophisticated ability to produce humanlike dialogue. Since then, Microsoft has incorporated the firm’s AI technology into a number of its own platforms, including Azure, Bing, and the Office suite (Word, Excel, etc.).
Microsoft’s growing influence in the artificial intelligence market, which was valued at $137 billion in 2022 and is expected to expand at a compound annual growth rate of 37.2% through 2030, makes the company’s stock more appealing.
Microsoft’s robust software is the company’s greatest asset
Microsoft’s software expertise has allowed it to become a dominant player in the gaming industry, in addition to enabling it to create powerful products like Windows and Azure. After the release of the original Xbox in 2001, the company’s gaming division struggled for years due to stiff competition from Nintendo and Sony. Microsoft was at a disadvantage because Japanese firms had dominated the market for so long.
Microsoft, however, stuck to its guns and focused on its strengths, launching the Xbox Game Pass subscription service for video games in 2017. Game Pass, often called “the Netflix for games,” provides subscribers with unlimited access to a large library of games for a flat monthly fee. By relieving consumers of the burden of purchasing games separately, as was necessary on competing consoles, the service significantly increased the value of Microsoft’s Xbox consoles.
Xbox Game Pass subscribers increased by 150%, from 10 million in 2020 to 25 million in 2022. On the other hand, Microsoft has surpassed Sony and Apple to become the world’s fourth-largest video game publisher. If Microsoft’s planned acquisition of Activision Blizzard later this year goes through, it will be the third-largest gaming company, significantly increasing the size of its Game Pass library.
Microsoft is the undisputed king of software, and the company’s market prowess bodes well for continued share appreciation for investors.