Many investors will be happy to see 2022 end. It's been a year of decline in the stock market as many industries have suffered from lower consumer spending wth inflation rising in equal measure.
Microsoft (MSFT -1.84%) has felt the effects of the stock market sell-off, with shares falling 28% year to date. However, the dip has only made the company's stock more attractive, with several promising developments planned for next year.
Here's why Microsoft shares could make an excellent buy in 2023.
Expansion in lucrative markets
As Microsoft has expanded over the years, it has strategically positioned itself as the backbone of hundreds of thousands of businesses worldwide. Its Windows operating system held a 70.68% market share as of August 2022, a majority share for at least the last decade.
Its Windows dominance helped Microsoft grow other aspects of its business, including its strong position as a leader in enterprise resource planning (ERP) platforms with Microsoft's Dynamics 365. The subscription-based product line includes applications for all aspects of running a business, such as marketing, sales, human resources, supply chain management, and more.
According to Grand View Research, the ERP software market will see compound annual growth of 10.7% until at least 2030, and Microsoft is well positioned to cash in.
Microsoft is also powering businesses' online presence and thousands of other websites with its quickly growing cloud computing platform Azure. In the first quarter of 2023, the company's revenue grew by 11% to $50.1 billion, with operating income rising 6% to $21.5 billion. The growth was primarily thanks to the Intelligent Cloud segment, with Azure earnings showing year-over-year revenue growth of 20% to $20.3 billion.
Microsoft was responsible for a 21% market share in cloud computing, second only to Amazon Web Services' 34% as of the third quarter of 2022. Macroeconomic declines hit Amazon particularly hard in 2022, bringing its free cash flow to a negative $4.97 billion compared to Microsoft's $63.33 billion as of Sept. 30. As a result, Microsoft is far better equipped to heavily invest in Azure and steal market share from Amazon in 2023.
What's in store for Microsoft in 2023?
In line with its expansion goals, Microsoft has some promising developments set for 2023.
Its video game brand Xbox has swiftly grown over the years, making it the No. 4 games company by revenue after Tencent, Sony, and Apple. And the company's planned acquisition of game developer Activision Blizzard for $68.7 billion would make raise it to No. 3.
The deal has been undergoing regulatory scrutiny over the last few months, with Activision CEO Bobby Kotick saying on Nov. 8 that he believes the acquisition will be complete by the end of Microsoft's fiscal 2023 in June. The company's purchase of Activision is promising, considering it is home to one of the world's most profitable game franchises, Call of Duty. With Activision's attractive game library, Microsoft could have the tools to attract significantly more players to its consoles and game subscription service, Xbox Game Pass.
In 2021, Microsoft entered the digital advertising market by acquiring Xandr. The company has since partnered with Netflix to exclusively run the ads on the streaming company's newly launched ad-supported tier. With the online video advertising market expected to nearly double from $190 billion in 2022 to $362 billion in 2027, according to research website Omdia, Microsoft could become a major player in the industry next year.
And CEO Satya Nadella said on Nov. 16 that Microsoft plans to expand its cloud computing business by investing in at least 11 additional regions worldwide. Nadella said the company is incredibly "bullish about what's happening in Asia," calling it a massive growth market.
Microsoft's cash in the bank, expanding business, and exciting plans for next year make its stock look like an excellent buy in 2023.
