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Hype Asset of the Day | February, 2nd, 2022



Microsoft Corporation (NASDAQ: MSFT)

The American multinational technology company Microsoft Corporation creates computer software, home appliances, laptops, and related services. The Windows line of operating systems, the Microsoft Office package, and the Internet Explorer and Edge web browsers are among Microsoft's most well-known software offerings. Microsoft is headquartered on the Microsoft campus in Redmond, Washington. With its recent success coming from major deals, the company has seen an increase in mentions by 213% over the last day, prompting investors to wonder what makes the company gain such hype. Currently, the shares of Microsoft trade at $254.39 per share.


Positive Hype

There are lots of ways in which Microsoft has done well for itself recently, here are some of the reasons for which it managed to generate positive hype.


  • Microsoft struck a deal with the London Stock Exchange. The deal calls for the exchange to spend nearly three billion dollars over the next decade on Microsoft products.


  • As the home of brands such as Windows, Office, Xbox, Azure, and LinkedIn, Microsoft has a significant market share in a variety of lucrative sectors. The potency of these brands led its earnings to soar 767% over the last 10 years, and they will likely continue rising for the next decade and beyond.


  • Strong positions in operating systems, productivity software, gaming, cloud computing, and even social media have led its revenue to climb 80% over the last five years to $198 billion.


  • In the same time frame, operating income has increased by 153% to $83 billion.


  • In its fiscal year 2023 Q2 report, Microsoft's gross profit margin rose, and operating profit declined by 4 percentage points. However, at 40%, the operating profit margin remains elevated.


  • Strong cash flow is doing more than simply funding Microsoft's growth initiatives. The company returned $5.1 billion to shareholders in dividend payments, up from $4.7 billion a year ago. Combined with stock buybacks, total cash returns this quarter were over $10 billion.


  • In addition to impressive past growth, Microsoft consistently invests in burgeoning markets that tend to pay off over the long term. Most recently, the company was proven right with its 2019 investment of $1 billion in artificial intelligence (AI) start-up OpenAI.


  • Microsoft is reportedly considering investing another $10 billion in OpenAI. The AI market was worth $93.5 billion in 2021 and is expected to expand at a CAGR of 45% through 2030 (per Grand View Research).



Negative Hype

No investment is perfect, and Microsoft is not an exception to this. Here are some potential drawbacks to investing in Microsoft, causing negative hype.


  • Microsoft is clearly squarely on the regulator's radars right now for the Activision Blizzard acquisition. The FTC might file a suit in order to try to stop that deal from happening or at least bring some concessions about.


Conclusion

Microsoft is feeling pressure from a slowing global economy. The software giant recently announced that sales growth fell to its weakest rate in years amid declining earnings. Yet Microsoft shareholders still have good news to celebrate, both for 2023 and beyond. The company's cloud business is growing at a solid clip, cash flow is strong, and Microsoft has a prime position in emerging industries like AI. Microsoft's primary strength and the reason for its consistent growth over the long term is its diversification, which safeguarded its business from short-term declines in specific markets.


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