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Mark Yu
Mark Yu
Articles (412)  | Author's Website |

Microsoft: The Next Company to Breach the Trillion-Dollar Mark

The company was never included in the so called ‘FANG’ group of high-flying tech companies

December 03, 2018 | About:

Microsoft is now the most valuable company in the world. At $851 billion as of last Friday, the Windows- and Office-software company has overtaken younger peers such as Amazon (AMZN) by $25 billion and Apple (NASDAQ:AAPL) by $4 billion.

The company that Bill Gates (Trades, Portfolio) and Paul Allen established back in 1975 has recently gained additional market appreciation brought about by its innovation. Not being part of Jim Cramer’s "FAANG" stocks, Facebook (NASDAQ:FB), Amazon (AMZN), Apple (NASDAQ:AAPL), Netflix (NFLX) and Google (NASDAQ:GOOGL)(GOOG) back in 2013, Microsoft promoted its then vice president of cloud and enterprise division, Satya Nadella, as its CEO in replacement of Steve Ballmer in the following year.

Since then, Microsoft appears to have focused more on its cloud business and has delivered impressive results. In just the recent quarter, the company's Intelligent Cloud business outgrew its Microsoft's Office Products and others by five percentage points, with a 24% increase in revenue year-over-year, and has been consistently delivering high growth income figures for the company.

Meanwhile, Microsoft was not spared when the FAANG group has fallen from its peak back on Aug. 30 but still managed to become more valuable than any member of the group as of today.

Value investors also have not kept fully invested in Microsoft as it becomes the most valuable company. Other than Daniel Loeb (Trades, Portfolio)’s Third Point nearly doubling its stake in the software company in the recent quarter, most value investors like Leon Cooperman (Trades, Portfolio) of Omega Advisors and Donald Yacktman of Yacktman Focused Fund (Trades, Portfolio) have mostly trimmed their Microsoft investments in recent quarters.

Microsoft did just become the most valuable company recently despite recording lower percentage revenue and profit growth figures than the average growth figures FANG stocks as a group in the recent third quarter. The company, however, did deliver nearly 2% faster growth in its business when compared to the once trillion-dollar iPhone company's revenue and profit figures in the same period.

Nonetheless, investors who have stuck with the FAANG group still have outperformed Microsoft since 2013, when the term was first coined, to present, by 4.36 percentage points, with an annualized return of 28.89%.

Should investors keep fleeing the most crowded trade of the year (FAANG), Microsoft could maybe gain some $150 billion worth of attention, indicating a 20% rally from today’s share price of $111 per share, making it the third company to breach the $1 trillion valuation this year. Analysts believe otherwise: They have an average price target of $126 per share — still about $30 billion short of a trillion-dollar valuation.

There is also just no saying how long Microsoft will stay above this very pristine landmark if achieved, as both Apple’s and Amazon’s valuations have declined since reaching the pinnacle point of valuation in this decade-long bull market.

Disclosure: Long Google, Facebook and Apple.

Read more here: 

Brandes Investments Sells Microsoft, Express Scripts

Fundsmith: The Charlie Munger Approach

Microsoft Continues Reaching for the Cloud

About the author:

Mark Yu
I'm a doctor in physical therapy (DPT) with a passion for finance. Not a registered financial analyst. Value seeker. Long only. Global investing. Long-term investing.

I attempt to dissect one company filing every day. I dislike goodwill and intangible assets.

One company (review) a day keeps the speculation (hopefully) away.

"The only source of knowledge is experience."

"I have no special talent. I am only passionately curious." - Albert Einstein

"To strive, to seek, to find, and not to yield." - Alfred, Lord Tennyson

"We find one a year, that's terrific. You do not need a hundred or a thousand great investment ideas to do well. You need a couple. And, the discipline is the most important thing." - Warren Buffett

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