The investment thesis for Microsoft is straightforward: Office software is an essential resource for most enterprises, and Microsoft 365 is the clear market leader. In fact, it s the most popular enterprise software product in any category.
Likewise, cloud computing is becoming increasingly popular, as it offers a more convenient and cost-effective option for clients. In addition, Microsoft recently launched Azure Percept for edge AI and updated Azure Arc for hybrid clouds, both of which are core to its growth strategy. These products address quickly growing industries, which should help Azure continue to gain market share.
Compared to PayPal and Okta, Microsoft trades at relatively cheap multiples: 11 times sales and 33 times earnings. Microsoft is also much larger, with a market cap of $1.8 trillion. Generally speaking, that indicates less long-term upside. However, the company s titanic size is also an incredible advantage, allowing it to outspend and operate more profitably
The Motley Fool Take
Microsoft, with a market value recently near $2 trillion, is arguably one of the safest stocks on the market. It has just about every attractive trait a single stock can possess. Its business is diversified: in this case, across operating systems (Windows), software (Office 365), cloud infrastructure (Azure), social media (LinkedIn) and video gaming (Xbox). Every one of these lines is a growth business, and most generate recurring subscription revenue. Moreover, each of these businesses is highly profitable and requires relatively little capital investment to grow.
In the quarter ending Dec. 31, 2020, Microsoft’s revenue accelerated by 17% year over year while its operating income grew by an even more impressive 29%. It also has a terrific balance sheet, with $132 billion in cash against just $60.5 billion in debt. That leaves plenty of cushion against a big downturn in the market and if one arrives, Microsoft could buy up its own stock at a discount, or ma