Rises in the cost of living throughout 2022 have led to steep declines in consumer spending and a stock sell-off. Microsoft (MSFT -0.18%) has been one of the many affected companies, with its share price down 33% year to date.

However, the company's exceedingly diversified business, with potent brands such as Windows, Azure, and Xbox, has helped it continue growing this year despite market declines. With an average 12-month price target of $296.98, 32% higher than its current stock price, Microsoft is looking increasingly attractive to those who are considering investing in the tech giant.

With that said, here are three things smart investors should know about Microsoft. 

1. A growing cloud computing business

Microsoft's cloud computing platform Azure has seen tremendous growth since it launched in 2008. The industry is expanding quickly, with Grand View Research reporting the market will rise at a compound annual growth rate of 15.7% from 2022 to 2030. As Microsoft is responsible for the second-largest market share in cloud computing, with 21% as of the second quarter of 2022, the company is well positioned to see significant gains over the long term.

In Microsoft's Q1 2023 earnings report posted on Oct. 25, the company saw its Intelligent Cloud revenue rise 20% year over year, more than double any other segment. The growth was primarily fueled by Azure earnings increasing by 35%.

While that figure is impressive, Microsoft reported 50% growth in Azure in Q1 2022, which slowed throughout the last 12 months. The slowing growth in cloud computing has been a market trend in 2022, with industry leader Amazon Web Services similarly seeing a decline in growth throughout the year. 

Macroeconomic factors have caused companies to tighten budgets, leading to slowing growth in cloud computing. However, the long-term potential in the industry continues to signal a promising business for Microsoft's Azure. 

2. A likely acquisition

All eyes have been on Microsoft since it announced plans to acquire video game company Activision Blizzard (NASDAQ: ATVI) in January for a historic $68.7 billion. The purchase has been held up by regulatory approval, where governments around the world are scrutinizing the deal over antitrust concerns. 

Despite the lengthy process, Microsoft and Activision have remained optimistic that the purchase will go through, with Activision CEO Bobby Kotick saying on Nov. 7 that he expects the transaction to finalize "in Microsoft's current fiscal year ending June 2023."

The acquisition is a promising move for Microsoft, as it will provide its already successful games business with a significant boost by adding several valuable video game franchises to its game library. In its January announcement, Microsoft revealed the deal would push it from the fourth to the third-biggest games company, after Sony and Tencent

The bump will be largely thanks to Activision's immensely popular game franchise Call of Duty. The series has earned over $30 billion in revenue since it first launched in 2003, making it one of the most successful franchises of all time. Additionally, its latest installment, Call of Duty: Modern Warfare II, launched on Oct. 28 and has already crossed $1 billion. 

While Microsoft does not intend to make future Call of Duty games exclusive to its Xbox game console, the franchise has the potential to provide a massive boost to its game subscription service Xbox Game Pass. The platform is often dubbed the "Netflix of games," as Microsoft adds its in-house titles from release day to Game Pass. A franchise with as much pull as Call of Duty could gain players who would rather pay a low monthly subscription fee for access to the series and a vast library of other games over paying full price to play the game on Sony's PlayStation consoles. 

3. Microsoft is cash rich 

As the likelihood of a recession in 2023 continues to grow, a company's free cash flow and the amount it generates from operations are increasingly important metrics. The higher these figures, the better equipped companies will be to weather an economic downturn. In this respect, Microsoft is significantly better off than many competitors. 

In terms of free cash flow, Microsoft is at the top of the pack against industry leaders such as Alphabet, Meta, and Amazon. 

MSFT Free Cash Flow Chart

Data by YCharts

Additionally, Microsoft's $87.69 billion cash from operations is significantly more than Meta's $54.07 billion and Amazon's $39.66 billion. Compared to the competition, Microsoft is in an excellent position to continue investing in itself and successfully overcome further economic declines. 

Lastly, with a price-to-earnings ratio of 24.66, a 34% decrease from a year ago, Microsoft stock is a bargain and an excellent investment for the long term.