Microsoft Shares: Should I Buy Microsoft Stock?
With the phenomenal growth of tech stocks such as Tesla over the past year or so, many investors are eager to find the next big thing. This eagerness to find the perfect growth stock means that well-established, mature companies are often overlooked. True, these types of companies have already been through their period of high growth and are, therefore, unlikely to outperform the market in the long-term. However, this does not mean that they have nothing to offer investors.
In this article, we will be examining in detail the prospect of investing in Microsoft shares. We will take a brief look at the company’s long and illustrious history, scrutinise its recent financial performance, analyse the evolution in Microsoft share price and much more! So if you ever find yourself asking the question “Should I buy Microsoft stock?” you are in the right place!
Table of Contents
Microsoft – A Brief History
Microsoft Corporation was founded in 1975 by Bill Gates and Paul Allen. The technology behemoth is probably most well-known for its operating systems, with, firstly, MS-DOS in the 1980s and subsequently, the more familiar Microsoft Windows.
The first version of Microsoft Windows was released in 1985 and in the years that followed, Windows went on to dominate the personal computer operating systems market.
In 1986, Microsoft went public via an initial public offering on the Nasdaq Exchange. Thanks to the dominance of Windows, Microsoft stock price increased rapidly throughout the late 1980s and the 1990s. The meteoric rise in the Microsoft share price was reportedly responsible for creating three billionaires and more than 10,000 millionaires amongst employees, who wisely accepted stock options as part of their compensation in the company’s early days.
Since its debut on the stock exchange, Microsoft has diversified beyond operating systems introducing various computer applications, including the popular Microsoft Office and Internet Explorer (recently replaced by Microsoft Edge), the Xbox gaming consoles, Bing internet search engine and, more recently, its cloud computing service, Azure.
Microsoft Financial Results
In terms of technology companies, Microsoft is certainly part of the old guard. As a company, it has already experienced its period of high growth and established itself as a market leader and one of the biggest companies in the world.
However, Microsoft continues to record impressive financial performances every year and continues to grow. This year has been no exception.
In the table below, we have highlighted some of the key indicators from its results for the year ended 30 June 2021 and compared them with the previous two years’ results.
Service and Other Revenue
Earnings per Share
Source: Microsoft Corporation - Form 10-K - For the Fiscal Year Ended 30 June 2021.
Looking at the data above, the numbers really speak for themselves. We can see immediately that everything has increased year on year with the most recent year being particularly impressive.
If we look closer, however, we can surmise that last year’s success is largely thanks to a huge increase in service and other revenue of 29% from the previous year. Product revenue, on the other hand, recorded an increase of just 4.5%.
Product revenue refers to revenue generated by sales of operating systems, hardware, applications and so forth. Whereas service and other revenue is mostly generated by sales and subscriptions of cloud-based products such as Office 365 and Azure.
This huge increase in service revenue is mainly attributable to the change in working conditions imposed by Covid-19 restrictions last year, with many companies seeking cloud-based services to facilitate their employees working from home.
It is possible that this increase will be corrected as employees are allowed to return to the office. However, we could also be witnessing the beginning of a new chapter in terms of working life, one where employees are able to exercise more freedom as to where they work, in which case, revenue from cloud-based services could continue to increase.
So what about the Microsoft shares themselves? In the next section, we will take a look at the recent evolution of Microsoft share price.
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The Evolution of the Microsoft Share Price
Depicted: Admirals MetaTrader 5 - Microsoft Corp. Weekly Chart. Date Range: 22 November 2015 – 16 August 2021. Date Captured: 16 August 2021. Past performance is not a reliable indicator for future results.
Above is a weekly chart of the Microsoft share price, showing its evolution since November 2015. Since August 2016, Microsoft shares have been trending upwards and, in the last couple of years, this upward trend has accelerated rapidly. Below is displayed a daily chart to capture this two-year period of rapid growth.
Depicted: Admirals MetaTrader 5 – Microsoft Corp. Daily Chart. Date Range: 1 April 2019 – 12 August 2021. Date Captured: 12 August 2021. Past performance is not a reliable indicator for future results.
We can see from this chart that – since the market downturn caused by the coronavirus pandemic, highlighted in red – the Microsoft share price has followed a clear upward trend, reaching an all-time high of $290.42 on 9 August 2021. So far in 2021, Microsoft share price has increased almost 30% (as of 11 August).
As well as the effects of the Covid-19 pandemic, we have highlighted and labelled several other key dates for Microsoft shares over the past few months, which have contributed to the upward trend.
The first date is the release of the latest Xbox gaming consoles on 10 November 2020, allowing Microsoft to capitalise on many consumers having an abundance of spare time due to Covid-19 induced social restrictions. This new console release was the major driver behind Microsoft gaming revenue increasing $3.8 billion, or 33%, in the year ending 30 June 2021.
On 12 April 2021, Microsoft announced the $19.7 billion acquisition of Nuance Communications – a cloud and AI software company. This acquisition demonstrates Microsoft’s ambition to continue to grow the cloud-based service portion of their business.
On 24 June 2021, Microsoft announced that Windows 11 would be released later in the year. The same day, buoyed by an increase in demand for their products and services during the pandemic, Microsoft’s market capitalisation closed the session in excess of $2 trillion for the first time in the company’s history. This figure is made all the more remarkable when you consider that Microsoft’s market capitalisation only passed $1 trillion two years beforehand. In two short years the company has doubled its value.
This makes Microsoft the second most valuable company in the world by market cap. In first place is long-time rival Apple. But what does the future look like for Microsoft shares?
Should I Buy Microsoft Stock?
Under the tenure of CEO Satya Nadella, Microsoft has embraced the future and shifted focus towards cloud-based products. Gone are the days of paying a one-off fee for Microsoft Office, now consumers must pay an annual subscription for Office 365. In terms of market share, Microsoft’s cloud computing product, Azure, is second only to Amazon Web Services in this rapidly growing field.
Despite Microsoft’s incredible $2 trillion market cap, as we have seen, the company continues to grow. When you look at Microsoft’s recent financial performance, there is little reason to doubt that Microsoft shares will continue to increase in the future. But as well as future growth, Microsoft stock offers investors so much more.
Holding shares in a company with a stature such as Microsoft carries less risk than buying shares in a smaller, less established company. That is not to say it is devoid of risk, all investments have an element of risk. However, you can expect less volatility owning Microsoft shares, which is ideal for a long-term investment.
Furthermore, unlike many younger tech companies, Microsoft pays a reliable quarterly dividend which is currently $0.56 per share. At the current Microsoft share price, that represents an annual dividend yield of around 0.8%. This may not seem like a lot, but it is a source of income which is consistently growing. The quarterly dividend is up from $0.31 per share in 2015.
The downside of investing in Microsoft shares? It is hard to deny that the share price is currently high after a year which has seen technology stocks boom. At this price, Microsoft shares may be too expensive for many investors.
However, it should be noted that Microsoft has a history of splitting its stock when the share price is high, having conducted nine stock splits since going public. Therefore, if share price continues to increase at the current rate, don’t be surprised if Microsoft announce a stock split at some point in the future.
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How to Buy Microsoft Shares With Admirals
If you are now wondering how you can get in on the action and invest in Microsoft, you may be interested to know that you can do so with Admirals!
In the rest of this section, we will provide a step by step guide on how to buy Microsoft shares with Admirals!
- Register for an Invest.MT5 account
- Download the MetaTrader 5 trading platform
- Open MetaTrader 5 and log in with your investing account details
- Press Control + U to bring up the Symbols window, shown below. Here search for Microsoft and click ‘Show Symbol’
Depicted: Admirals MetaTrader 5 - Symbols
- Head to the Market Watch tab on the left hand side of the screen, locate the Microsoft stock symbol you added in the previous step, right click it and select ‘Chart Window’ to open a price chart
- Press the ‘New Order’ button at the top of the screen in order to bring up the order window, where you can select the number of Microsoft shares you wish to purchase, as well as set a take profit and stop loss if desired.
Depicted: Admirals MetaTrader 5 – Microsoft Corp. Daily Chart. Date Range: 8 June 2020 – 13 August 2021. Date Captured: 13 August 2021. Past performance is not a reliable indicator of future results.
Final Thoughts – Is Microsoft a Buy?
The answer to whether or not you should buy Microsoft shares really boils down to what you are looking for with your investment. If you are looking for an investment which is going to take off, have rapid, phenomenal growth and make you rich, then Microsoft shares are probably not the right option.
However, finding a stock which fits that bill is incredibly unlikely. For every company you read about who records a rapid and remarkable growth in share price, such as Tesla, there are a hundred other companies whose share price has not gone anywhere and yet a hundred more whose share price has plummeted.
For those looking for a long-term investment in an established, market leading company, with considerable competitive advantages and which pays a reliable and regular dividend, Microsoft shares are certainly an attractive prospect.
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