With revenue is growing 21%, including $51.7 billion reaching the bottom line in the December quarter, it’s time to load up on Microsoft (NASDAQ:MSFT) stock again. MSFT stock is down 13% in 2022.
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That decline puts the tech giants market capitalization at $2.18 trillion with the shares selling at a price-to-earnings ratio of just 31. It’s at its lowest price since early October. As investors have become obsessed with inflation, the company doing the most to fight it is getting cheaper.
The bears’ argument is that Microsoft paid too much, $68.7 billion in cash, for Activision Blizzard (NASDAQ:ATVI) and put a target on its own back with regulators.
We’re From the Government
Until now lawmakers have focused their ire on Cloud Czars Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and Meta Platforms (NASDAQ:FB). Get big enough, get powerful enough and government is the only force that can constrain you. Eventually, as happened in China with Cloud Emperors Alibaba Group (NYSE:BABA) and Tencent (OTCMKTS:TCEHY), it will.
Microsoft is going to have difficulty getting the ATVI deal approved, say critics, and may have more problems absorbing the company. The deal also highlights CEO Satya Nadella’s history of growing through acquisitions, including LinkedIn, Nuance and Github. His latest target may be Mandiant (NASDAQ:MNDT), formerly FireEye, the second-generation firewall company.
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Even if Microsoft has American regulators cowed, Europe is another matter. As Google has been forced to share ad revenue with European newspapers, the bloc’s mobile carriers are now demanding that Microsoft pay them for traffic. Parliamentarians are also bringing forward a Digital Markets Act that could further constrain Microsoft’s behavior.
Microsoft is the Government
In some ways the argument about Microsoft vs. government is irrelevant. Microsoft rules.
As Microsoft has come to define the global economy, Microsoft identity has become as essential as a government ID. As cloud has come to drive the economy, Microsoft is increasingly called upon to moderate and censor discussions. As the cloud has become the global economy, Microsoft has also become an economic regulator.
I for one welcome our new Microsoft overlords.
Microsoft poured more than $15 billion into capital spending during the first half of its 2022 fiscal year. It has pushed out nearly $24 billion in dividends and stock buybacks in just the last six months. Operating cash flow could be $80 billion this year.
Companies are now putting twice as much money into cloud as into their own data centers. Microsoft’s Azure is the only cloud that’s gaining on market leader Amazon. It’s extending the cloud to the network edge, essential for low-latency metaverse applications. It’s also gaining browser share on Apple (NASDAQ:AAPL).
The Bottom Line on MSFT Stock
Microsoft has become the easiest stock in the world to recommend. TipRanks shows 29 analysts tracking MSFT stock and who say buy it.
Microsoft’s past antitrust troubles have become a blessing in disguise. Its lobbying shop is the best in Washington. It only moved on ATVI after convincing policymakers the deal made it the “third leading” gaming company.
There’s nothing negative I can say about the company. CEO Nadella is reportedly worth $848 billion and he’s the biggest bargain in business. The man is still just 54 and probably has another decade of leadership in front of him.
When you get a little money saved up, put some of it in Microsoft. You’re getting 20% revenue growth, one-third of which goes to net income. If any company is worth 31 times its earnings, this is the one.
On the date of publication, Dana Blankenhorn held long positions in MSFT, AAPL, BABA, GOOGL and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at [email protected], tweet him at @danablankenhorn, or subscribe to his Substack.
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