We came across a bullish thesis on Microsoft Corporation (NASDAQ:MSFT) on Business Model Mastery’s Substack by The Antifragile Investor. In this article, we will summarize the bulls’ thesis on MSFT. Microsoft Corporation (NASDAQ:MSFT)’s share was trading at $422.37 as of Jan 7th. MSFT’s trailing and forward P/E were 34.88 and 32.05 respectively according to Yahoo Finance.
Radu Bercan / Shutterstock.com
Microsoft’s success lies in its unparalleled dominance of the enterprise ecosystem, a result of its strategic focus on integrated solutions tailored to businesses. Unlike Amazon’s broad consumer appeal, Microsoft’s strength is rooted in serving enterprise clients through its three main revenue streams: cloud computing (Intelligent Cloud), productivity tools (Productivity and Business Processes), and personal computing (More Personal Computing). This diversified yet interconnected model ensures resilience and adaptability in an ever-evolving market.
The Intelligent Cloud segment, led by Azure, has emerged as Microsoft’s growth engine, contributing $91 billion of its $211 billion revenue in FY2024, representing 43% of total revenue. Azure’s 22% global cloud market share makes it the second-largest player after AWS. Its hybrid cloud capabilities, which seamlessly integrate on-premises and cloud-based systems, have been a key differentiator, especially for enterprise clients. The segment’s 67% gross margin underscores the scalability and profitability of Microsoft’s cloud offerings, positioning it as a critical pillar of its business.
In productivity tools, the company continues to thrive with its subscription-based services, led by Office 365, which boasts an 85% gross margin and high customer retention. This segment generated $66 billion in FY2024, including $15 billion from LinkedIn, which grew 10% year-over-year. LinkedIn’s strategic importance as a professional networking and recruitment platform further cements Microsoft’s role in driving enterprise productivity and connectivity.
The More Personal Computing segment, encompassing Windows, Surface devices, and Xbox, contributed $55 billion to the company’s revenue. While hardware typically carries thinner margins, Microsoft has capitalized on gaming’s potential through Xbox Game Pass, which now serves 30 million global subscribers, showcasing a robust recurring revenue model.
Despite its strengths, Microsoft faces challenges, including potential reductions in IT spending during economic slowdowns, fierce competition in cloud services, and regulatory scrutiny, such as the hurdles around its Activision Blizzard acquisition. However, its emphasis on artificial intelligence, exemplified by Copilot and its collaboration with OpenAI, positions Microsoft as a frontrunner in shaping the future of AI-driven innovation. This strategic focus ensures the company remains a cornerstone of the enterprise landscape, offering a compelling blend of stability and growth potential.
Microsoft Corporation (NASDAQ:MSFT) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 279 hedge fund portfolios held MSFT at the end of the third quarter which was 279 in the previous quarter. While we acknowledge the risk and potential of MSFT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.