- Microsoft is beginning to produce innovative hardware.
- Can Surface Series be the iPhone of Microsoft?
- Given the Cloud growth and product pipeline, Microsoft stock is undervalued.
Over the past few years, Microsoft (NASDAQ:MSFT) has rejuvenated after failing to take advantage of the smartphone revolution, which Apple (NASDAQ:AAPL) had ushered in. Moreover, they have managed to gain momentum in next generation technologies such as Cloud computing. This among other things (to be covered) shows a resurgence by the Redmond,Washington-based tech giant against the most valuable company in the world.
Granted, the Windows Phone project has been a failure due to a lack of apps and an underwhelming late entry into the smartphone market. However, new developments such as the Surface Pro 4 have helped the company generate $3.81 billion in profit in the last quarter. In fact, Surface revenue is up by 9%. This is rather impressive when one considers the range of hybrids on the market.
Moreover, the Surface Studio was well received by the press. Notably, it is a product pitched exclusively at professionals- a demographic which Apple has been successful at attracting.
Satya Nadella has injected a renewed innovative spirit into Microsoft and this is exemplified with the Holo Lens. Virtual Reality (VR) is proving to be a next generation growth driver with Facebook (NASDAQ:FB) also joining the race. Notably, Microsoft’s VR product could be used in lucrative industries such as education, healthcare and defence. At present, they are the only company with an upcoming product launch in VR (late November).
Interestingly, conservative estimates pitch virtual reality as an opening into a new industry, which will be valued in excess of $100 billion by the year 2020. Notably, with smartphone sales on the decline, it seems that we are approaching the peak of what a smartphone can do. Much like the iPhone introduced a new category of product, and introduced a new industry, VR is set to be as revolutionary as the first iPhone.
Unlike in the smartphone boom, Microsoft is well placed to lead it and generate significant revenue over the next few years
The biggest growth driver for Microsoft has been their Cloud computing business. In their latest earnings, Microsoft Azure revenue grew by an astounding 102%. Notably, the world is moving towards a more cloud-based approach to business. For instance, Uber grew to a multi-billion dollar taxi service without having any employees or owning any taxis.
Much like the demand for personal computing turned Microsoft and IBM into multi-billion dollar companies, demand for cloud computing is set to be as game-changing as the industrial revolution.
Microsoft is well-positioned to take advantage, and the figures show that the demand for cloud computing is on the rise.
Between January and October of 2016, Apple and Microsoft’s percentage changes in stock price have moved in tandem. However, the launch of the Macbook Pro and strong iPhone 7 sales means that Apple stock is set to finish the year with a double-digit percentage increase in stock price. However, Microsoft isn’t lagging far behind.
What some investors fail to notice is that Microsoft stock is undervalued. Apple is heavily reliant on the iPhone. This puts them in a precarious position for two reasons:
1) Smartphone sales are on the decline. Therefore, the point when Apple has a decrease in smartphone sales is fast approaching. When that happens the stock will drop off a cliff.
2) Devices from Chinese smartphone manufacturers are becoming increasingly attractive to western consumers. In fact, two of the top five spots for smartphone shipments by volume are occupied by Chinese companies. The issue for Apple is that Chinese manufacturers are able to undercut on price while keeping quality high.
The two factors above means that Apple may soon lose its dominance, and at the moment we are yet to see a growth driver from them with the same promise as that of Microsoft's cloud computing revenue stream.
To conclude, Microsoft has taken a series of forward-thinking actions. Market trends and demand shows that a big boost in revenue is upcoming. On the other hand, we are yet to see such innovation or growth driver from Apple.
Investors are resting on the laurels of Apple’s iPhone. You know what they say about putting all your eggs in one basket…?
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