Microsoft has taken its place as the second US publicly traded company in history to reach a $2-trillion market value, joining predecessor Apple in a very exclusive club.
The company has been buoyed by betting its dominance in enterprise cloud computing with Microsoft Azure. Microsoft seems set on continuing to release future enterprise software to users in a post-pandemic world.
Its shares rose as much as 1.2% in New York on Tuesday, allowing Microsoft to briefly join Apple as one of only two companies trading at such a golden value before closing a little bit lower than the mark at $265.51.
Saudi Aramco eclipsed that threshold briefly in December 2019, but currently has a market value of about $1.9 trillion.
Microsoft Azure
Microsoft has seen a 19% increase so far in the first 6 months of the year, notably outperforming Apple and Amazon as investors leap upon the software developer’s stock on expectations of long-term growth for both earnings and revenue, and the promise of further expansions into areas like machine learning and cloud computing.
Cloud computing has been a key focus for the company that has seen its significant recent gains. Shaped by current CEO and Chair-of-the-board, Satya Nadella, Microsoft is now the largest seller of cloud-computing software in the world, counting both its infrastructure and Office application cloud units.
The company’s third-quarter results released in late April this year topped expectations, demonstrating strong growth across its business segments.
Microsoft “has its hands in a lot and it is doing it all well: gaming, cloud, automation, analytics, AI,” says Hilary Frisch, senior research analyst at Clearbridge Investments, quoted by Bloomberg.
“It is an attractively valued name within tech, and it should benefit from both the economy reopening as well as from a more pronounced shift toward the cloud.”
Growth Drivers
Microsoft’s cloud-computing business has been a central drive for it to reach the $2-trillion valuation.
According to data compiled by Bloomberg, the Intelligent Cloud business accounted for 33.8% of Microsoft’s 2020 revenue, making it the largest of the three major segments for the first time, and up from 31% in 2019.
The Cloud Division, which Nadella was previously the executive of, showed revenue growth of 24% last year, compared with the 13% growth in Productivity and Business Processes, and the 6% growth of Microsoft’s More Personal Computing unit.
It is believed that Nadella’s strategic move in shifting the company’s focus into the Cloud allowed Microsoft to benefit from trends that arose during worldwide lockdowns resulting from the COVID-19 pandemic. This and capitalisation on Microsoft 365’s remote working capabilities.
“At a high level, the two core pillars of Microsoft’s bull narrative — Microsoft 365 and Azure — are well understood by the investment community,” William Blair analyst Jason Ader wrote in May.
“What is perhaps less appreciated is how over the last 15 years Microsoft has expanded its IT wallet share through expanding into new product areas.”
William Blair believes Microsoft will double its wallet share again over the next decade.
