Microsoft (MSFT +0.11%) has grown exponentially in its 47 years of business. Despite a recent market downturn, the company's stock has grown over 200% in the last five years, thanks to the potency of brands such as Xbox, Windows, Azure, and Office. These brands' success and market share will likely help the company continue growing for years to come.
However, Microsoft's stock has fallen 29% since January, along with a long list of other tech stocks. Investors who haven't been able to stay up to date on recent market trends might be perplexed as to why a dominant company like Microsoft has suffered such steep declines in 2022. Let's find out.
A beaten-down market
Microsoft has been among the many tech stocks hit by rising inflation and slowing consumer demand in 2022. Even though the company has suffered a 29% decline over the year in its share price, other companies have suffered more. For instance, PC component leaders AMD (AMD +5.24%) and Nvidia have seen their stocks fall about 60% in the same period.
While consumer demand has fallen across various industries as the cost of living continues to rise, the PC market has been one of the hardest hit. According to Gartner, PC shipments fell 19.5% in the third quarter of 2022, with the overall market declining by 17.3%.
Most recently, on Oct. 7, Microsoft's stock dipped 4.5% after AMD pre-announced plummeting PC sales for its September quarter. AMD projected revenue of $5.6 billion vs. analysts' expectations of $6.7 billion, as its client chip sales were down 53% quarter over quarter. The sharp decline for AMD led Microsoft investors to doubt the Windows company's PC-related business.
Microsoft's PC business is reported under its more personal computing segment, which made up 30% of revenue in the company's fiscal year 2022, which ended June 30. While Microsoft's prominence in the PC market has triggered investor concern in 2022, its diversified revenue suggests the company will be better off than other companies in weathering market declines.
Is Microsoft stock a buy?
In fiscal year 2022, Microsoft's best-performing segments were its productivity and business processes segment (which include Office and LinkedIn) and intelligent cloud (revenue from Azure). The former made up 31.9% of Microsoft's revenue in 2022 and saw a rise of 18% year over year, while the latter was responsible for 37.9% of revenue and rose 25%.
Even the company's more personal computing segment isn't a total black cloud on the overall business. In addition to Windows and PC revenue, it includes earnings from Microsoft's Xbox consoles and services, which grew 16% throughout the year. The company may be most known for its influential role in the PC market, but its business has expanded to include far more lucrative markets over the years.
The cloud market alone was worth $206.5 billion as of Q2 2022, with Microsoft's Azure having the second biggest market share at 21%. According to Grand View Research, the market will grow at a rate of 15.7% from 2022 to 2030. Moreover, Microsoft's segment growth of 25% since 2021 proves the lucrative prospects of its operations in this industry.
NASDAQ: MSFT
Key Data Points
Additionally, Microsoft's trailing free cash flow as of June 30 stood at $65.2 billion, matching Alphabet's result within a rounding error but trailing Apple's $107.6 billion. The Windows company will likely see some form of decline in the next year as fears of a recession grow. However, its varied businesses and free cash flow suggest the company is strong enough to overcome it.
Microsoft's decrease of 29% in its share price in 2022 makes it an absolute bargain, considering its long-term prospects. With the company's substantial market share in promising industries and the funds to carry it through sustained market downturns, an investment in Microsoft is a no-brainer.
