It hasn't been a great year for Microsoft (NASDAQ:MSFT) shareholders. Concerns surrounding 13% declines in both Windows OEM Pro and Windows OEM non-Pro revenues last quarter are largely to blame for Microsoft's 12% year-to-date stock price decline. As is often the case when a stock falls out of favor, Microsoft's languishing share price also affords investors a potential opportunity, however, including the heavy hitters.
One such fund manager, AllianceBernstein (AB), seems to like what it sees regarding Microsoft's future. In last quarter's 13F filing period -- an SEC-required document detailing a money manager's investment portfolio -- AB bet big on Microsoft, making the software king one of its top five holdings. Why would a multi-billion dollar fund manager increase its stake in Microsoft by 13% when it's out of favor? The good news for investors is that there are several reasons.
Right on track
AB added nearly 4.3 million Microsoft shares in Q4, bringing its total to approximately 37.2 million. Microsoft now makes up 1.43% of AB's portfolio, and is valued at slightly over $1.5 billion as of this writing. For an investment manager of AB's size, 37 million shares isn't necessarily going all in, but it clearly sees something in Microsoft CEO Satya Nadella's plans for the future.
Nadella's vision for Microsoft's future is all about his mobile-first, cloud-first transition. Even as investors and analysts continue to focus on Microsoft's legacy business in PC software, Nadella is looking to lead the cloud race, and his efforts are clearly paying off.
Last quarter -- Microsoft's fiscal 2015 Q2 -- cloud revenue jumped triple digits for the sixth straight reporting period, and is now tracking at $5.5 billion annually. Is that leading the cloud race? Most industry pundits point to Amazon.com's (NASDAQ:AMZN) Web Services (AWS) unit as top dog in the cloud revenue race, and it appears we're finally going to learn if that's true.
Amazon.com (finally) intends to disclose cloud-related sales for the first time when it announces Q1 earnings on April 22. Even if Microsoft's $5.5 billion and triple-digit growth in cloud sales haven't unseated AWS, it's likely only a matter of time. Why? Because what Nadella recognizes -- and billion dollar fund managers acknowledge as well, it seems -- is that winning in the cloud is about offering Software-as-a-Service (SaaS) rather than simply hosting. And when it comes SaaS, Microsoft's Office 365 and related offerings, delivered via its Azure cloud platform, are unparalleled.
A different kind of mobile
On the mobile front, Microsoft naysayers point to its lagging Windows Phone OS market share and meager smartphone unit sales as signs it will never be in the same league as industry-leading Apple. To be sure, matching the record-breaking 74.5 million iPhones Apple sold last quarter isn't going to happen anytime soon. To put Apple's iPhone sales into perspective, Microsoft moved 10.5 million Lumia smartphones in its last quarter.
But there's more to Microsoft's mobile strategy than selling entry-level smartphones to emerging markets. For Nadella, mobile-first is about getting Microsoft's solutions into as many mobile units as possible, regardless of OS. And that's exactly what Microsoft is doing. The recent announcement introducing Office 365 with mobile device management (MDM) capabilities across Windows Phone, iOS, and Android phones and tablets is just the latest example of Nadella's mobile strategy.
Bigger plans for Azure
Until recently, Microsoft's Azure platform was mentioned when discussing its cloud solutions, and that's still the case. But as of a couple of weeks ago at Microsoft's Convergence 2015 gathering, Azure and several related services will also be the basis for a significant push into the Internet of Things (IoT).
Microsoft has been testing Azure as a means of collecting and managing "machine-generated data from sensors and devices" for a year, and Nadella is ready to take the training wheels off. Going all in on IoT utilizing Azure is a natural step, and it shouldn't take long for Microsoft to ramp-up, just as it did in the cloud.
Once investors move beyond "Microsoft the PC software provider" and direct their attention to its results in cloud, mobile, and now IoT -- as money managers like AB and others seem to have done -- Microsoft's stock will finally get the jump-start shareholders have been waiting for. And one of the industry's highest dividend yields of 3% should make the wait a little easier to tolerate.