Since Microsoft (MSFT 1.40%) was founded 47 years ago in 1975, the company thrived as a leader in software, active in industries such as operating systems, word processing, video games, cloud computing, and social media. Its significant market shares in multiple industries granted the company the second-largest market cap in the world at $1.95 trillion, behind only Apple.
As a result, Microsoft's stock attracts a lot of bulls with its reliable and diverse business. However, bears are not enthused by the tech giant's tendency to never quite reach the top of the markets it enters.
Before adding Microsoft's stock to your portfolio, it's smart to understand both arguments. Here's the bear-versus-bull breakdown for Microsoft's stock.
Bear: Microsoft is often second or third best
Microsoft has developed a reputation for entering new markets and rising high but never quite reaching the top. For instance, the company's cloud-computing platform, Azure, held a substantial 21% market share in the cloud industry as of the third quarter of 2022. However, that figure is still second to Amazon Web Services' 34% share. As a result, the company won't benefit as much as its biggest competitor as the booming industry expands.
Moreover, Microsoft ventured into video games by launching its first console, the Xbox, in 2001. The brand had a rocky start, entering a highly competitive environment that had long been dominated by Japanese companies such as Sony and Nintendo. Microsoft has had significant success in the industry since then. It's currently the fourth-largest games company by revenue after Tencent, Sony, and Apple.
Meanwhile, Microsoft is striving to improve its position with a bid to acquire games company Activision Blizzard later this year. A lengthy regulatory process has held up the purchase, but if successful, it will make Microsoft the third-largest games company.
Additionally, Microsoft trails the competition with its search engine, Bing. The platform holds the second-largest market share in search at 8.85%, compared to Alphabet's Google with 84.69%. Microsoft could give Google a run for its money after recently integrating Bing with the artificial intelligence (AI) program ChatGPT. However, it could take many years to catch up to the leader -- not to mention that Alphabet is working on its own venture into AI.
NASDAQ: MSFT
Key Data Points
Bull: Diversification means stability
While Microsoft's participation in many markets made it a jack of all trades but a master of none, the strategy also led to stability and reliable growth. As seen in the chart below, Microsoft and Apple were the only two companies among the five biggest names in tech to outperform the Nasdaq Composite index throughout 2022.
Data by YCharts.
Macroeconomic headwinds plagued many tech companies in 2022 because reductions in consumer demand meant steep declines in earnings. However, Microsoft's varied business kept it growing. In fiscal 2022, the company's revenue rose 18% year over year to $198.3 billion, while operating income climbed 19% to $83.4 billion.
In its most recent quarter (Q2 2023), Microsoft was hit hard by personal computer market declines, with its more personal computing segment reporting a revenue decline of 19% year over year to $14.2 billion. However, the company achieved revenue growth of 2%, hitting $52.7 billion and operating income of $20.4 billion, primarily driven by its productivity and cloud computing businesses.
Microsoft might not be the king of markets such as cloud computing, video games, and search engines, but its dominance in computer operating systems with Windows and productivity software with Office provided the financial resources to expand to multiple lucrative markets. As a result, Microsoft's stock rose 179% in the last five years and about 831% in the last decade.
The bulls win this one. Microsoft's consistent growth is worth investing in.
