Source: PaxForex Premium Analytics Portal, Fundamental Insight
Microsoft is one of the most diverse technology companies in the world, with market-leading positions in many industries. Windows, Office, LinkedIn, Xbox, and Azure, among others, have helped grow Microsoft's authority in the tech world and protected its business from the macroeconomic downturn.
Since the beginning of 2022, the company's stock has fallen about 25 percent, as few have been able to avoid the market downturn. Rising inflation has driven down consumer spending on technology, and global PC shipments are down 15% in Q3 of 2022. Nevertheless, despite the economic difficulties, Microsoft continued to show growth in revenue and operating profits throughout the last year.
As we all know, it's always better to invest in businesses rather than stocks. This will help you find companies that can deliver significant growth over the long term, no matter what the state of the economy is. That's why it's wise to keep an eye on top companies like Microsoft. Here are a few important aspects you should know about this company.
- It's the star of cloud computing
As per analysts` forecasts, the $369 billion cloud computing market will grow at a compound annual growth rate of 15.7% through at least 2030. Microsoft's Azure cloud computing platform has the second-largest market share at 21 percent, so the company is well positioned to profit from overall market growth over the long term.
Microsoft's computing measures are already paying off. In Q1 of fiscal 2023, revenue in Microsoft's Intelligent Cloud segment grew 20% YoY to $20.3 billion, and operating income rose 17% to $8.9 billion. This segment increased revenue significantly in the quarter when its More Personal Computing segment declined slightly. The company's overall revenue still rose 11% to $50.1 billion, thanks in part to Azure.
Microsoft is going to develop this sector of its business. In November, CEO Satya Nadela stated the company had intentions to invest in at least 11 new regions around the world, building more data centers. Nadela emphasized that he has a "very confident" eye on Asia, calling it a "huge growth market."
- The power of Windows
The Windows operating system (OS) has maintained a market share of more than 70% since at least 2013, notwithstanding the presence of Alphabet's OS and Apple's OS.
The company's dominance in operating systems has greatly strengthened its other businesses, including its strong position as a leader in enterprise resource platforms (ERP) with Dynamics 365. This subscription-based product line includes applications for all aspects of the business, such as marketing, sales, human resources, supply chain management, and more.
The widespread use of Dynamics 365 has led to a 28.5 percent market share of $50.5 billion in ERP systems, with an expected CAGR of 10.7 percent through 2030.
Windows has also gained huge traction in PC gaming and is mostly the OS of choice for gamers and developers. This has promoted Microsoft's gaming struggles within the Xbox brand. In 2017, the company launched its Game Pass (Netflix for gaming) platform for Xbox consoles, and in June 2019 it rolled it out to PCs. As a result, the number of Game Pass subscribers grew from 10 million to 25 million between 2020 and 2022.
- The company is mastering advertising
Microsoft joined the digital advertising market last year when it acquired Xandr. In 2022, the company took a major step into the industry by initiating a partnership with Netflix for exclusive ad placement on the company's recently launched ad-supported streaming channel.
The digital advertising market has experienced a bit of a downturn this year as companies have cut budgets and advertising has become one of the first expense items. But this downturn won't last forever. According to research site Omdia, digital advertising revenue will nearly double, from $190 billion in 2022 to $362 billion in 2027.
Given Microsoft's past success in tapping new markets, the company is likely to become a major player in the industry over the next few years.
Microsoft's free cash flow as of Sept. 30 was $63.33 billion. So the company is well-prepared for further economic downturns (including a possible recession in 2023) and continues to invest in its growth, whether in cloud computing, gaming, digital advertising, or another worthy endeavor. This makes the company's stock an excellent long-term investment.
As long as the price is above 240.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 248.87
- Take Profit 1: 263.00
- Take Profit 2: 275.00
Alternative scenario:
If the level of 240.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 240.00
- Take Profit 1: 230.00
- Take Profit 2: 220.00
