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Microsoft Corporation Stock’s Future Is Bright, But Don’t Forget Its Past

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It's only a few days into the new year, so rash judgments should be avoided. Still, it's hard not to get excited about the prospects of Microsoft Corporation (NASDAQ: MSFT ). After a quick stumble in December, Microsoft stock is up 2.4% this month and making new all-time highs.

Microsoft stock might be what contrarians consider an illogical opportunity.

Since the company found its groove back in the second half of 2016, corrections have been few and far between. Instead, MSFT has only incurred resting periods, from which it later launches into another rally. Attempting to time the bottom of this venerable technology firm undoubtedly led to much frustration.

However, investors shouldn't be too surprised about the resilience and performance of Microsoft stock. Despite it being older than every millennial - it was founded on April 4, 1975 - MSFT remains extremely relevant.

It frequently butts heads with Amazon.com, Inc. (NASDAQ: AMZN ) and Alphabet Inc (NASDAQ: GOOG , NASDAQ: GOOGL ) in the cloud computing sphere. Microsoft has even jumped into the blockchain revolution.

Nevertheless, I also respect the other side of the debate. As InvestorPlace feature writer James Brumley mentioned, cloud computing is a catch-all phrase that is seemingly concrete. In reality, it's an ever-evolving industry. Because of this dynamic, competitors are a dime a dozen.

Moreover, because the cloud is a burgeoning industry, iconic firms don't have nearly as much leverage. It's far easier for newcomers to make a significant impact, thus increasing competitive risks. And while blockchain is a novel concept, let's not pretend that MSFT has a monopoly on the idea.

Can investors expect another stellar return out of Microsoft stock, or is the best behind it?

PC Market Still a Tailwind for Microsoft Stock

I've expressed my bullish sentiment about MSFT in the past, and I'm not going to reverse course now. With CEO Satya Nadella at the helm, the company has transitioned from pretender to contender. In my opinion, it would be foolish to bet against Microsoft stock on the arbitrary notion that shares have moved too much.

As with every other MSFT bull, I'm optimistic that management will push its way into next-generation technologies. But I also argue that we shouldn't ignore the software giant's core businesses.

As our own Tom Taulli explained, Office 365 revenues increased 42% in the last quarter. Technically, Office 365 is a cloud platform. However, it's the popularity of the platform's products that makes Microsoft stock a great buy.

Taulli mentioned that these core "businesses are tied to the PC industry, which is in a secular decline. Yet, the company has still been able to manage through this. In the latest quarter, Windows OEM revenues increased by 4% and the top-line for the Surface line was up about 12%." To put it another way, Microsoft stock succeeded in spite of the company's traditional offerings.

I only disagree slightly with the characterization. Despite being tied to the PC industry, Microsoft's legacy products and services are and will remain valuable assets.

The PC is hurting but not dying. Sure, smart devices have taken significant market share; hence, traditional computer sales naturally declined.

However, if you want to do anything other than rudimentary functions, you inevitably turn to the PC. It's not that you can't perform complex functions with your tablet, but why would you want to? The headaches and frustrations would have you running to an old school desktop in a hurry.

Old Doesn't Mean Useless

I recently purchased the Apple Inc. (NASDAQ: AAPL ) flagship iPhone X. I love it, but I noticed a curious feature. Included among the free apps is Apple's Numbers spreadsheet. Even when used in a Mac as it was originally intended, Numbers is a poor alternative to Microsoft Excel. But in a smartphone? Forget about it!

The PC is only dying in the sense that many companies don't find it profitable to compete in this arena. But the software and applications for which people use traditional computers are still highly in demand. Furthermore, management has an enviable competitive moat in that substitutes for its legacy products simply stink.

This isn't to say that investors should ignore the next-gen factors that make Microsoft stock so compelling. But don't ignore the legacy technologies in the process. While they don't have the sex appeal, they're the bread and butter that help make MSFT tick.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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The post Microsoft Corporation Stock's Future Is Bright, But Don't Forget Its Past appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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