Ignore The Financials, MSFT Stock Is Headed Higher : Microsoft Corporation (NASDAQ:MSFT)

  • Nadella is positively impacting Microsoft from the inside.
  • IBM will positively impact Microsoft from outside.
  • Ignore the financials and focus on managerial actions.

You have got to give Microsoft Corporation (NSDQ:MSFT) major props for shifting its business model.

How is this company able to continue down the right path? Perhaps, it's the internal corporate environment that is becoming more favorable for Microsoft.

Internally, you have a strong CEO who is focused on building out its cloud infrastructure. He is well aware of managerial, cognitive rigidity, which only focuses on the past successes and ignores the future. In order to embrace the shift away from the PC business, Nadella is changing the culture and focusing on related diversification measures. Since Microsoft is a large company, it will be very difficult to internally develop a competitive advantage. Thus, the focus on acquisitions and even open innovation and networking with the likes of Linux will reduce the "time to market" and development costs.

This shows that the CEO is trying to influence the top management team to focus on the long-term performance and not the short term performance. The larger and older the company, the more difficult it is to change the already set processes in the company. Thus, management has to be very careful when trying to redefine the company to ensure that its products are still accepted. At the end of the day, customers keep Microsoft in business, not shareholders. (Also Read: Could Microsoft Corporation Become A Trillion Dollar Company)

Microsoft is in the second place with 16% market share, but still has a long way to go before it will be able to catch up with Amazon (NSDQ:AMZN) that has over 50% market share of the cloud computing market. Amazon was lucky since they were the first ones to enter the market 10 years ago. It remains to be seen whether Microsoft can grab market share from Amazon.

Industry Opportunity

Sometimes for firms to succeed, the industry players may open a path of opportunity. This is what will happen if IBM succeeds with its open letter to Trump.

In her letter, IBM CEO, Mrs. Rometty, states that developing areas are cyber security, data science, and artificial intelligence. This shows IBM's commitment to innovative business service models, which will help the company to achieve competitive advantage. More importantly, the letter signifies IBM's hope to influence the government (in this case to influence human resources policy) so that its initiatives do not get shut down with regulations.

If you read the entirety of the letter, you will understand that if Rometty gets most of her requests, not only will IBM be able to thrive, but Microsoft will thrive as well. (Also Read: Can Mobile Be A Growth Driver For Microsoft Corporation)

Conclusion

If you are considering whether or not to buy Microsoft, I would recommend buying the stock based on managerial and industry impacts versus financial statement. The financials will not tell you anything at this point. The financials may cause you to reconsider investing in Microsoft. More useful areas of research are paying attention to the media articles that show Microsoft's top management team's actions, the overall organizational response, how the company is trying to align itself with its competitors, whether the stakeholders overall have a positive view of the firm or are putting pressure on it that could ruin its long-term vision, and especially the government regulations.

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  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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