For those who invest in Microsoft (MSFT) as a long-term core portfolio, there is certainly a lot to like about this stock.
Indeed, Microsoft’s core software remains the cash cow that investors have relied on for decades. This core business has been extremely successful and is likely to continue this success in the long term. Note that this company has provided growing recurring cash flows that have given Microsoft the opportunity to aggressively expand into other key companies. (See Microsoft stock charts on TipRanks)
Among the two focal points that many growth investors value are cloud computing and gaming. Indeed, according to the company’s recent financial results, these two segments were among the fastest growing of all of the company’s core businesses. They are the wave of the future. Unsurprisingly, these are also the segments investors care about right now.
Let’s dive into each of these companies and discuss why growth investors still value this stock at this valuation.
Cloud Computing Key to Success for MSFT Stock Investors
One of the key segments that MSFT stock investors regularly examine is Microsoft’s cloud computing division.
In fact, Intelligent Cloud accounted for $15.1 billion of the $41.7 billion reported in total revenue for Microsoft last quarter. Year-over-year, this segment grew 23%, a pretty impressive growth rate for any company in this current environment. The results make sense, given the boost cloud saw during the pandemic last year.
The truth is that cloud computing is so intertwined with Microsoft’s business model that it’s difficult to determine an exact percentage of the company’s business that is truly cloud-derived. However, the fact that Intelligent Cloud makes up more than 36% of Microsoft’s business speaks volumes about the growth rate of this incredible segment in recent years.
As Microsoft looks forward to a cloud-oriented, data-driven future, the company hopes its core products will continue to be chosen by consumers who have more and more discretion. Indeed, investors seem to remain optimistic about MSFT stock. Until the company’s growth rates in this segment slow down, there is a lot to look forward to about an optimistic long-term outlook for this company.
Gaming a meaningful growth avenue for Microsoft
Another important segment that doesn’t get as much attention from analysts is gaming. That said, many argue that this industry could be critical to the business in the long run. Microsoft has even shown some impressive results in its gaming segment lately.
The company’s gaming business falls under the “More Personal Computers” category, which accounted for approximately 31% of Microsoft’s total revenue for the quarter. The company’s impressive 34% growth rate in its Xbox content and services business suggests that the pandemic-related catalysts that carried this segment last year are far from over.
Indeed, with all of us staying at home a lot more than usual, gaming revenues have exploded lately. Investors expecting a meaningful decline in this segment this year have been disappointed so far. For long-term investors in MSFT stocks, this is a good thing.
Plus, gaming enthusiasts have a lot to offer to Microsoft’s upcoming Xbox Series X. The specs of this new game console are absolutely incredible. In fact, many experts are already crowning the new Xbox as the winner in the “PS5 vs. Xbox” discussion.
Of course, time will tell how well these new consoles perform. However, Microsoft has another interesting angle: the company’s approach to digital gaming. That is, consoles may be great for short-term monetization, but the company is looking forward to an even more digitally oriented future.
According to a recent release from Microsoft, the company is reportedly looking to “embed the Xbox experience directly into Internet-connected televisions without the need for additional hardware other than a controller.” Such a move would allow the company’s Xbox division to move towards a streaming or cloud gaming model. If it works well, with low latency and impressive results, Xbox and Microsoft could have an edge in a hyper-growth area of the gaming market.
What Analysts Are Saying About MSFT Stocks
According to TipRanks’ analyst consensus, MSFT stock is coming in as a strong buy. Out of 26 analyst ratings, 26 are buy recommendations.
As for price targets, the average Microsoft price target costs $298.92. Analysts’ price targets range from a low of $270.00 per share to a high of $330.00 per share.
Bottom Line on Microsoft
There are so many reasons why investors love MSFT stocks right now. For growth investors, dialing into the company’s cloud and gaming divisions makes it easy to understand Microsoft’s valuation.
Microsoft is a huge company that continues to grow at competitive rates. Until the company slows down, MSFT stock seems to have a huge amount of room to move even higher.
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Disclosure: Chris MacDonald had no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information in this document is for informational purposes only. Nothing in this section should be construed as a solicitation to buy or sell securities.