Microsoft (MSFT 1.75%) has been one of the best-performing mega-cap companies in the last five years, gaining more than 190%.
Despite Microsoft's solid stock return, investors are optimistic that the future remains even brighter for the company as it rides megatrends like cloud computing, artificial intelligence (AI), and more.
But before you buy the stock, you should know these two crucial aspects of Microsoft.
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A quick overview of Microsoft's business model
Founded in 1975 , Microsoft is the oldest of the big four technology companies -- the others are Apple, Alphabet, and Amazon -- in the U.S.
In the early decades, the company brought revolutionary software to the markets, such as MS-DOS and Windows, cementing its leadership in the personal computing software industry.
But it didn't stop at the personal computing business. In the 2000s, Microsoft expanded into enterprise software with products like Windows Server and Office. Later in the 2010s, the company shifted toward cloud computing with the introduction of Azure, positioning it as a significant player in the cloud services market.
Besides these core businesses, Microsoft ventured into other areas, such as gaming with the Xbox console, launched hardware products such as Surface, and acquired LinkedIn. Last year, the tech company announced plans to acquire Activision Blizzard further diversifying its business empire. Given the complexity and size of the deal, Microsoft has yet to receive full regulatory approval, especially in countries like the U.S. and the U.K.. If this deal goes through, it will strengthen Microsoft's market position in the global gaming industry.
As it has evolved over the decades, Microsoft built a highly diversified business empire spanning multiple industries and product categories. The tech company classifies these businesses into three major segments: productivity and business processes, intelligent cloud, and more personal computing. Intelligent cloud is the largest of the three, accounting for 41% of Microsoft's $212 billion revenue in 2022. Productivity and business processes is the second-largest with a 33% share, and more personal computing represents the remaining 26%.
Throughout the decades, Microsoft has adapted to changing tech landscapes, invested in innovation, and remained a crucial player in the industry. Thus, it has favorably positioned itself to capture opportunities in the coming years.
What lies ahead for Microsoft
It's not a secret that Microsoft is already a massive conglomerate (with $212 billion of annual revenue) and the second-largest company in the world by market capitalization, just behind Apple. Still, there are good reasons to be optimistic about Microsoft's prospects in the coming years.
Microsoft's cloud computing business, Azure, is the most apparent area positioned for expansion. This business benefits from the ongoing cloud migration and the acceleration of artificial intelligence (AI) adoption in companies.
As the second-largest cloud provider globally, Azure stands an excellent chance to benefit from its share of the growth of this industry. It could gain market share by leveraging its enterprise relationship built over the decades to grow customer spending over time.
And the advancements in AI will open up plenty of opportunities for Microsoft, many of which do not yet exist today. For instance, the partnership with Open AI in generative AI software like ChatGPT could open up new opportunities in the digital advertising industry -- historically controlled by Alphabet and Meta Platforms. On top of that, Microsoft is betting on hardware products like notebooks, tablets, and Xbox 360. It might even introduce augmented reality and virtual reality devices in the future.
In short, while Microsoft is already gigantic, it still has plenty of opportunities to grow in the years ahead. The key is that the company must continue to adapt to market trends, invest in innovation, and meet the evolving needs of its customers. If it can do this, there is a good chance for Microsoft to maintain its position as a leading technology company for many more decades.
