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Microsoft stock: Room for more?

With shares trading at record highs, Microsoft [MSFT] reported annual results in July that more than pleased investors. However, traders now face the tricky rally dilemma: sell and pocket the cash or measure the length of its legs?

Since surpassing its previous all-time high (reached in 1999) in mid-2016, Microsoft has seen nothing but gains.

The share price has since nearly doubled, now sitting around $115, outperforming the Nasdaq Composite, which gained just over 50% in the same time. Microsoft reported net revenues of $110bn in the financial year to June 2018, up 14% from $96bn in 2017, which had already grown 7% from 2016.


Powered by the cloud

One of the reasons for this growth has been the company’s successful bet on the cloud-based industry and the support it can offer sectors including finance. Headed by CEO Satya Nadella since 2014, Microsoft transitioned from being a company pegged to personal computing to focusing on the growth of Microsoft Azure, its cloud-computing arm.

Developing Azure has been pivotal to Nadella’s strategy, with the cloud arm seeing revenue rise by 89% in 2018, following a 97% increase in 2017. Many see Azure’s technology as the cornerstone of future consumer banking. The division is now working together with start-ups such as Paymentology, which aims to be the next-gen payment-processing platform. Naeem Aslam, chief market analyst at ThinkMarkets, believes Microsoft is now a much more “solid company” because of its involvement in the fintech space.

As such, he thinks Microsoft shares have further to go and warns investors to stay alert to any potential drop in the stock. “A pull back would be an opportunity to buy it at a better price,” Aslam noted.


Growing competition 

However, there are signs of increased competition in the cloud-computing industry. NYSE-listed provider of database Teradata Corp [TDC] recently launched its own analytics platform, which seems a good competitor to Azure’s Machine Learning Studio. 

Earlier this year, the San Diego firm became the first to provide 4D analytics, based on sensory data. Microsoft must ensure it doesn’t suffer another Apple-style usurpation if it is to keep growing.

There does seem to be room in the market for Microsoft to run, although it’s likely Amazon will continue to dominate. A research report from Citi noted: “For 2020, we model AWS at $44bn, Azure at $19bn and Google Cloud Platform at $17bn. There is enough market to have all reach these goals and, by 2020, expect it will be more clear whether this is a ‘two-horse’ race (Amazon/Microsoft) or ‘three-horse’ (adding Google).” 

North America currently dominates the cloud-computing market, with Europe close behind. But Asia Pacific is likely to undergo the fastest expansion and capture the largest shares by the end of 2023.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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