Microsoft Corp, became the second US public corporation to attain a market worth of $2 trillion, bolstered by predictions that its dominance in cloud computing and enterprise software could expand further in a post-coronavirus future.
Its stock climbed as much as 1.2 percent in New York on Tuesday, momentarily joining Apple Inc as one of only two companies trading at such a high price before closing pennies shy of the record at US$265.51. Saudi Aramco briefly surpassed that level in December 2019 but now has a market capitalization of around US$1.9 trillion.
Satya Nadella, who took over as CEO of Microsoft in 2014, has transformed the Redmond, Washington-based corporation into the world's largest vendor of cloud-computing software, including both its infrastructure and Office application cloud units.
Microsoft has risen 19% this year, outpacing Apple and Amazon.com Inc, as investors rushed into the company on the backs of long-term earnings and revenue growth, as well as expansion in areas such as machine intelligence and cloud computing. The company's third-quarter results, which were revealed in late April, exceeded expectations and showed tremendous growth in all its business sectors.
The Nasdaq 100 Index, heavily weighted in technology, beat the S&P 500 Index on Tuesday as Federal Reserve Chair Jerome Powell restated his belief that inflation will be temporary. Following Powell's remarks, both indexes increased their gains, with the Nasdaq 100 up 0.9 percent and the S&P 500 up 0.5 percent.
According to Hilary Frisch, senior research analyst at Clearbridge Investments, Microsoft "has its hands in a lot, and it's doing it all well: gaming, cloud, automation, analytics, AI." "It is a high-valued name in the tech industry, and it should gain from both the reopening of the economy and a more marked shift toward the cloud."
Microsoft, which Bill Gates and Paul Allen co-founded in 1975, gave birth to the personal computer software industry and controlled the market for PC operating systems and Office software for many years. In the 1990s, as internet browsers like Netscape became more popular, Microsoft rushed to release its product bundled with Windows software. The US government brought a grueling antitrust action in 1998, and a federal judge found the corporation guilty in 2000.
Though the government did not seek a break-up of Microsoft's business as a penalty in the antitrust case, the software giant largely missed the advent of mobile software, social media, and internet search in the following decade, falling behind newer rivals such as Google and nimbler ones such as Apple. Nevertheless, in the last seven years, Nadella has brought Microsoft to the forefront of technology, emphasizing cloud, mobile computing, and artificial intelligence, thanks to a series of strategic moves.
While it took Microsoft 33 years from its IPO to attain its first $1 trillion valuations in 2019, the next trillion only took two years, thanks to a boom in tech stock popularity before the Covid-19 outbreak and during the health crisis. So when Apple surpassed the $2 trillion mark last year, it made Wall Street history.
Amazon, with a market cap of over US$1.8 trillion, and Alphabet Inc, with a market cap of around US$1.6 trillion, lag the two among US names.
"Microsoft ticks all the boxes: it's in the markets that investors prefer, it has robust and consistent growth, and it's still very well positioned to profit from the long-term secular trends we see in technology," said Logan Purk, an Edward Jones analyst. "Considering how it has transitioned into the cloud, a valuation of $2 trillion is warranted, and it is attractively valued even given the good performance," says the company.
According to Bloomberg statistics, more than 90% of analysts advocate purchasing Microsoft, with none giving the company a sell recommendation. From current levels, the average price target suggests an increase of about 11%.
Microsoft's cloud computing division has been a driving force in progress. According to Bloomberg data, Microsoft's Intelligent Cloud business accounted for 33.8 percent of its 2020 sales, making it the largest of the three primary divisions for the first time, up from 31% in 2019. Last year, the business saw a 24% increase in sales, compared to a 13% increase in Productivity and Business Processes and a 6% increase in Microsoft's More Personal Computing segment.
Microsoft has benefited from business trends that evolved during the global pandemic due to Nadella's strategic decisions. Lockdowns and remote work hastened the transition to the company's meeting software, and clients have been urged to accelerate the modernization of software networks and applications in the cloud. Xbox gaming subscriptions enticed people looking for something to do while confined at home during the winter months.
As employees return to work, Microsoft has pushed new ideas for organizing meetings where some attendees are in person. Some are remote and measures to promote wellness and productivity for employees who, according to the business, have been worn out by the year's trials.
In May, William Blair analyst Jason Ader stated, "At a high level, the two core pillars of Microsoft's bull narrative – Microsoft 365 and Azure – are well understood by the financial community." "What is maybe less acknowledged is how Microsoft has grown its IT wallet share over the previous 15 years by extending into new product areas" and gaining market share. According to the report, from 2006 to 2020, the wallet share doubled, and "we expect it can double again over the following decade," according to the report.
The company's M&A strategy has also received vital feedback from Wall Street. It just announced that it would acquire Nuance Communications Inc., a leader in speech recognition. Microsoft previously attempted to buy Discord Inc for $12 billion, but the video-game chat business turned down the offer.