By: Alex Olshanskiy

Microsoft Corporation (Ticker: MSFT) is one of the leading technology companies in the world. It has a market capitalization of $2.53 trillion; only Apple is larger, with over $3 trillion in value. Microsoft’s mission statement focuses on the empowerment of people and organizations worldwide through the use of its company’s products. “We believe in what people make possible” is an apt motto for this innovative technological giant.

Microsoft’s three business segments are Productivity and Business Processes (P&BP), Intelligent Cloud (IC) and More Personal Computing (MPC). These divisions all work to help customers get the most value with the cloud, to understand Artificial Intelligence (AI) and its expanding market potential and to drive operating efficiency by aligning its cost structure with revenue growth.

Microsoft’s stock price is influenced by many factors. The acceleration of digital transformation through Azure, a cloud computing platform, has provided many services and solutions for businesses, developers and consumers. Azure allows users to create, run and manage applications and data on Microsoft’s global network of datacenters. It helps organizations transition from on-premises hardware and software to the cloud. Since 2018, the IC segment has produced more revenue than the P&BP segment. The revenue from Azure increased 45% in fiscal 2022. Microsoft has so many customers using its different products and services, and this advantage could help Microsoft attract new and existing customers to switch to Azure.

Microsoft is also impacted by Artificial Intelligence (AI). CEO Satya Nadella recently announced an update. New technologies developed by the creators of the AI bot ChatGPT are being integrated into Microsoft Bing and Microsoft Edge. This update may improve Microsoft’s search engine by providing more comprehensive answers as well as a new interactive chat feature (see Viewpoint Q1 2023 “Chatting Our Way to Productivity”).

These steps, along with other plans, could boost the company’s revenue from online advertising and cloud services with the intent of digging into Google’s market share. Microsoft may also attract more users and developers to its platforms. GitHub Copilot is a first-of-its-kind AI pair programmer which may help developers write better code much faster. Some projections suggest that the AI industry is set to soar, with a +$1 trillion market over the next decade. Microsoft is well positioned to take advantage of the AI industry, and it expects AI to touch all of its products.

Not to be discounted is the plan for Microsoft to buy Activision Blizzard for $68.7 billion in cash. This could grow its gaming business by competing in the cloud gaming market. Activision Blizzard owns some of the most popular games, including Call of Duty, World of Warcraft and Diablo.

Microsoft has positioned itself well for the future, and these changes and innovations could drive more growth in the future and maintain its sustained leadership in the technology sector. Microsoft also is aware of the risks including the ongoing shift to subscriptions, a deceleration of Azure growth, competition and higher costs. The stock is up over 43% so far this year, but diversification, the shift to cloud-based models and the potential for AI provide catalysts that could boost their productivity and accelerate their growth over the next years. Microsoft is a high-growth business and we believe a positive asset in Tufton investors’ portfolios.