Bulls vs Bears: Should I Buy Microsoft?

Microsoft is flexing its cloud capabilities, but does that impressive growth make it a buy?

Ollie Smith 18 November, 2021 | 1:09PM
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Microsoft HQ

Bulls Say:

  • Public cloud is widely considered to be the future of enterprise computing. Microsoft’s Azure is a leading service that benefits from the evolution to hybrid environments and then ultimately to public cloud environments.
  • A shift to subscriptions accelerates growth after the initial growth pressure. Microsoft has passed the margin inflection point now, and margins are increasing again, returning to pre-Nokia and pre-cloud levels.
  • Microsoft has monopolylike positions in various areas like operating systems and Office that serve as cash cows to help drive Azure growth.

Bears Say:

  • Momentum is slowing in the shift to subscriptions, particularly in Office, which is generally considered a mature product.
  • Microsoft lacks a meaningful mobile presence.
  • Microsoft is not the top player in its key sources of growth, notably Azure and Dynamics.

Morningstar Analyst Dan Romanoff Says:

Since taking over as CEO in 2014, Satya Nadella has reinvented Microsoft (MSFT) as a cloud leader. In our view, this company is one of two public cloud providers that can deliver a wide variety of platform-as-a-service and infrastructure-as-a-service solutions at scale.

Additionally, Microsoft embraced the open-source movement and has largely transitioned from a traditional perpetual license model to a subscription model. Finally, Microsoft exited the low-growth, low-margin mobile handset business and is driving its gaming business to be more cloud-based. These factors have combined to drive a more focused company that offers Microsoft impressive revenue growth with high and expanding margins.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Microsoft Corp329.49 USD0.00Rating

About Author

Ollie Smith  is editor of Morningstar UK