A stock market sell-off in 2022 has sent many of the world's most valuable companies' shares tumbling. The tech industry has been hit especially hard as rises in inflation have slowed consumer spending and led many households to trim their budgets. In fact, the Nasdaq-100 Technology Sector index has plunged 37% year to date.
As a leader in the PC industry, Microsoft's (MSFT 2.22%) stock has not been unscathed through the market declines. Its shares have fallen 28% since January, primarily brought down by macroeconomic headwinds.
Despite its stock dip, Microsoft shares have risen 192% in the last five years. The company offers investors a robust business absolutely worth buying during a market sell-off. Let's assess.
Microsoft's power lies in its diversification
Microsoft may be best known for its influential role in the PC industry with its dominating Windows operating system and widely used Office software such as Word, Powerpoint, Excel, and more. However, the company has also made significant inroads in gaming and cloud computing with brands like Xbox and Azure.
In Microsoft's first quarter of 2023, revenue saw year-over-year growth of 11% to $50.12 billion, with operating income growing by 6% to $21.5 billion despite its More Personal Computing segment seeing a slight decline in revenue.
The diversification within Microsoft's business went a long way to secure growth in Q1 2023. For instance, the tech giant's revenue saw a healthy split between its three segments: Productivity and Business Processes was responsible for 32.8% of revenue, Intelligent Cloud 40.5%, and More Personal Computing 26.6%.
Despite More Personal Computing having 0% growth in its revenue in Microsoft's latest quarter, the 20% rise in its cloud computing segment and 9% increase in its Productivity and Business Processes, which includes earnings from its Office software and LinkedIn, made up for its PC losses.
Growing market shares
The Windows company's priority on diversification has also led it to have dominating market shares in multiple lucrative industries.
For instance, Microsoft has retained an over 70% market share in PC operating systems since at least 2013, having a 76.33% share in June 2022. In fact, the tech giant has stolen share back from competitors such as Alphabet's Chrome OS and Apple's Mac OS in 2022, with Microsoft having a 73.72% market share in operating systems in December 2021.
Its dominance in operating systems has helped the tech giant increase its market share in other industries, such as gaming, a $195 billion industry expected to see a compound annual growth rate of 14.1% until at least 2030. Microsoft launched its Netflix-esque game subscription service Xbox Game Pass in 2017 on its Xbox consoles, expanding the service to PCs in 2019. The move widened its subscriber reach, with Game Pass growing from 10 million members in 2020 to 25 million in January 2022.
Additionally, the company's cloud computing service Azure has quickly grown its market share in the $217 billion industry. As of the third quarter of 2022, Azure held a 21% market share in cloud computing, second to only Amazon Web Services' 34%. Considering the industry is expected to have a compound annual growth rate of 14.8% from 2022 to 2030, according to Grand View Research, Microsoft is in a solid position to see significant gains in the coming years.
Furthermore, Microsoft's free cash flow of $63.33 billion as of Sept. 30 is significantly higher than Alphabet's $16.08 billion and Amazon's -$4.97 billion. If fears of a recession in 2023 come to fruition, Microsoft's free cash flow suggests it is well equipped to invest in its business and manage further economic declines.
With a diverse business, growing market share in several promising industries, and a price-to-earnings ratio of 26 or 27% below what it was in January, Microsoft is an excellent buy amid a stock market sell-off.
