Last year's sell-off led countless tech companies to experience steep declines in their stocks. Despite its position as a market leader, Microsoft (MSFT -1.00%) shares were not unscathed, falling nearly 29% throughout 2022. However, as seen in the chart, the company outperformed many of its peers amid economically challenging conditions.
Data by YCharts
Microsoft proved the resilience and stability of its business in 2022, with its substantial market share in multiple high-growth industries keeping its business growing.
The company's stock has risen 20% year to date, making now an excellent time to learn more about this tech giant as it recovers. Here are three things about Microsoft that smart investors know.
1. Microsoft has a solid history of growth
As the home of brands such as Windows, Office, Xbox, and Azure, Microsoft has built itself into a tech behemoth, with the second-largest market cap in the world at $2.15 trillion, just behind Apple. Over the years, the company utilized Windows' dominating 74% market share in operating systems to boost its other brands, which has seen it gain strong positions in productivity software, gaming, and cloud computing.
Over the last five years, Microsoft's shares increased by 226% and over 900% in the last decade. The company continues to deliver stellar growth 37 years after it went public in 1986, suggesting it will likely continue expanding well into the future. In fact, Microsoft's annual revenue climbed 79% to $198 billion since 2018, with operating income up 138% to $83 billion.
Microsoft has a reputation for significant stock growth over the long term, making it a compelling buy right now.
2. A priority on investing in future technologies
Much of Microsoft's success has been thanks to its unwavering eye on the future, investing in technologies well before they fully bloom. The company launched its cloud platform Azure in 2010, venturing into an industry now valued at about $484 billion. The market has taken off since Azure entered the scene, alongside an increase in consumer data consumption, high-powered activities such as video and music streaming, and the necessity for more intricate websites.
More recently, cloud computing experienced a boom during the COVID-19 pandemic, as many companies moved their businesses online to suit hybrid working styles. Meanwhile, Microsoft continues to profit from the industry's growth, with Azure revenue rising 31% year over year in the second quarter of 2023.
Microsoft's priority on backing future technologies also saw it invest $1 billion in OpenAI in 2019, the developers behind the artificial intelligence (AI) chatbot ChatGPT. The start-up wowed the tech world in November 2022 with the launch of ChatGPT and its advanced ability to produce humanlike dialogue, prompting Microsoft to invest a further $10 billion in OpenAI. Microsoft has since integrated the company's AI technology into several homegrown platforms, such as Azure, its search engine Bing, and Office programs Word and Excel.
Considering the AI market was valued at $137 billion in 2022 and is projected to expand at a compound annual growth rate of 37.2% through 2030, Microsoft's growing position in the industry only makes its stock more attractive.
3. Microsoft's key strength is its potent software
In addition to robust offerings such as Windows and Azure, Microsoft's talent in software enabled it to become a leading name in gaming. The company's Xbox gaming division struggled for years after releasing its first console in 2001, with steep competition from Nintendo and Sony. Japanese companies had long dominated the market, putting Microsoft at a disadvantage.
However, Microsoft stayed the course and played to its strengths by releasing the game subscription service Xbox Game Pass in 2017. Sometimes referred to as "the Netflix for games," Game Pass grants consumers access to an extensive library of games for one low monthly fee. The service significantly boosted the value of Microsoft's Xbox consoles, releasing consumers from paying for games individually, as was required on competing consoles.
From 2020 to 2022, Xbox Game Pass members rose 150% from 10 million to 25 million. Meanwhile, Microsoft is now the fourth-largest games company in the world after Tencent, Sony, and Apple. If its proposed acquisition of Activision Blizzard later this year is successful, Microsoft will further expand its Game Pass library and move up to the third-largest gaming company.
Microsoft is a software king, with its talent in the market likely to offer considerable stock gains for years.
