Microsoft is a giant in the tech sector with a 40+ year history of innovation. Chances are, you’ve used a Microsoft product at some point in the last year and might even be reading this article on one now. Born in a Washington garage, the company was formed by college-age programmers Bill Gates and Paul Allen and now has multiple successful products for use in dozens of tech niches. The garage-born company recently surpassed $800 million in market cap and new CEO Satya Nadella looks like a great leader. Can anything derail this stock?
What is Microsoft?
Back in 1975, Bill Gates had an idea. His childhood friend Paul Allen had just shown him an issue of Popular Mechanics containing an article about one of the first personal computers. The two had repeatedly discussed how the future would see computers in homes and businesses across the country and this article presented a unique opportunity. Gates and Allen went on to develop a BASIC interpreter program for the machine mentioned in the magazine. The interpreter was well-received and the pair got the okay to distribute. Allen suggested they name their new business “Micro-Soft” and Gates became the first CEO on April 4.
Microsoft branched out to design the MS-DOS operating system in 1980, which became the company’s first major hit following a deal with IBM. MS-DOS was the prevailing operating system on most personal computers throughout the 80s. From MS-DOS came Microsoft Windows in 1985, a operating system still used by millions of people today (albeit far more advanced versions).
Microsoft Office followed in 1990, a productivity suite with useful workplace programs like Word, Excel, and Powerpoint. By 2001, the company had products in both the computer hardware and software lines and decided to enter new territory: console video games. The new Microsoft XBox competed directly with video game giants Sony and Nintendo, eventually taking significant market share from both.
Today, Microsoft has their hand in many of the tech sector’s products. They still make and sell Office and Windows, but now the firm also distributes:
- Smartphones and tablets
- Data security
- Internet search and browsing
- Cloud computing
- Social networking
History of Microsoft Stock
Microsoft went public on March 13, 1986 after a decade of successful ventures in the burgeoning computer industry. The price was $21 per share and the company raised $61 million from the initial offering. Investors were eager to get their hands on such a popular name and the stock price climbed continuous throughout the 1990s and early 2000. During this 10-year timeframe, the company stock split eight different times, including a 2-1 split in 1999 right before the dot-com bubble popped. Here’s a chart showing Microsoft’s history of stock splits:
Like most tech companies, the dot-com bubble hit Microsoft hard and the stock price failed to make new highs for over fifteen years. A final stock split occurred in 2003, but the company traded in a flat range for a long time. The Great Recession took Microsoft shares down to levels not seen since 1997 and the rebound many stocks got in 2009 failed to materialize for them. However, the rebound wasn’t absent, only delayed. Microsoft stock caught fire in 2014 and the company pushed upward, finally breaking its split-adjusted all-time high at the end of 2016.
Microsoft’s last five years have been the company’s best since the dot-com boom, with the latest new all-time high coming on October 3 last week. But the company lost 8% the following week, including 6% during the meltdown on October 10.
Pros of owning Microsoft stock
Proponents of Microsoft stock think the company still has room to climb thanks to the following reasons.
Multiple revenue streams
Microsoft is involved in so much more than just PCs now. The Azure cloud computing system is a big seller and the company recently acquired programmer networking site GitHub. And don’t forget, they still sell Windows, Office, and Xboxes too.
Satya Nadella took over the CEO position from Steve Ballmer in 2014 and immediately began reshaping the company for the modern age. Nadella expanded the company’s reach into cloud computing and AI while also working to form a responsible corporate culture. He’s got a different vision than Bill Gates is and willing to cooperate with competitors to further his goals for the company.
No signs of slowing down
Microsoft celebrated its 43rd birthday back in April, but the company doesn’t appear to be long in the tooth. They’ve jumped right into the AI race and have built a formidable offering in the cloud computing space. Microsoft has a history of adapting and should never be counted out, especially with a new forward-thinking CEO.
Cons of owning Microsoft stock
Considering adding shares of Microsoft to your portfolio? Make sure you consider these potential downsides before buying.
Overly reliant on PCs
Microsoft may have a diverse product catalogue, but Windows is one of their big sellers and the future of the PC market is cloudy at best. Windows needs to be renovated for the mobile age to continue being successful.
Microsoft isn’t just going toe-to-toe with Apple anymore. Companies like Google, Amazon, Oracle, Salesforce, and Sony all thrive in the spaces Microsoft is entering and there will be constant pressure to innovate.
Stock might be overbought
Share price has doubled since July of 2016 and the stock now sports a P/E ratio over 50. Could a slowdown be coming? How much bigger can an $800 billion company get?
How to Buy Microsoft Stock
1. Determine how much you want to invest
Microsoft is a tech stock, an industry known for volatility. If you want to add Microsoft shares to your portfolio, make sure you set an amount to invest and don’t deviate from it.
2. Find shares with your brokerage account or buy directly from Microsoft
For most investors, the easiest way to buy Microsoft stock is through a brokerage account. If you don’t have one, check out Benzinga’s ranking of the best online stock brokers. You can also purchase shares directly through Microsoft’s Direct Stock Purchase and Dividend Reinvestment Program. Visit Microsoft’s investor relations page for more info on direct share purchases.
3. Complete your purchase
Once you’ve opened a brokerage account, it’s time to buy the stock. Microsoft trades under the ticker MSFT, so locate those shares and place an order to buy. Use a market order to purchase the stock immediately or a limit order to buy the stock once it reaches (or drops to) a certain price.
Microsoft might not be considered a hot tech company like Google or Apple, but they’ve been churning out impressive new projects just as quickly. Advancements into AI and cloud computing look like they’re already reaping rewards. New CEO Satya Nadella has the company on a good path, but the decline of PCs could start taking of bite out of revenue. It’ll be up to Microsoft to innovate once again.