Microsoft stock on track to enter $2 Trillion evaluation club with Apple

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After almost a decade of stagnation, Microsoft's stock evaluation could reach its highest ever at $2 trillion in 2021.

Despite a global pandemic and a worldwide economy flirting with recession, the US stock market continues to ride high rewarding the S&P 500 and Nasdaq with 3 and 5 percent increases respectively for the quarter. The rise in performance for the market was fueled in large part by the FAAMG group (Facebook, Apple, Amazon, Microsoft, Google), pivoting and diversifying enough to accommodate an influx of traffic and purchases while most of the world quarantined. As a result, TheStreet is speculating that Microsoft could join Apple as one of two US-based companies to hold a 2 trillion-dollar evaluation in 2021.

Microsoft's current $1.9 trillion market evaluation frames most 2 trillion speculation talk as more of an inevitability than a possibility at this point. In April 2021 alone, Microsoft's stock rose 7% leaving a roughly 5% gap between the company and the coveted 2 trillion evaluation to be scaled between now and its fiscal 4th quarter.

Microsoft's evaluation climb piggybacks on a steady stream of diversified purchases, acquisitions, deals, and collaborations the company continues to make that aligned with the upward trajectory of their respective business models. A Bethesda acquisition to bolster its relatively nascent but successful subscription-based game streaming efforts, being tasked with augmented reality hardware products for the US military to the tune of $22 billion or purchase of the Marsden Group to expand its rapid prototyping initiatives, all coalesce around a company fostering multiple billion businesses.

Microsoft $2 trillion evaluation - army hololens deal

Beyond a diversified P&L, investors seem to be more pleases with Microsoft's pivot to subscription-based models for many of the services under its tentpole products. From Office to Azure to Xbox, Microsoft has at least one popular subscription service that drives steady and reliable revenue gains for the company and rewards investors with a stability quotient between 15 and 18% whereas competitors such as Apple and Amazon can fluctuate between 28% and beyond.

All that is to say, there most likely won't be a single headline-grabbing acquisition this year that will be the tipping point to grant Microsoft the exclusive 2 trillion stock evaluation but more of its steady capitalization of market trends pre and post-pandemic. TheStreet highlights many of the same market factors we've reported on over the last five quarters for the company as the incremental gains needed to snatch that 2 trillion title in 2021 which includes:

  • Secular shift to cloud solutions that should increase cloud infrastructure revenues and likely expand software margins.
  • A change in work habits that favors the home office, a plus for business productivity offerings like cloud storage and Skype.
  • The tablet-as-a-PC trend that favors Surface.
  • The new video game console cycle was recently kicked off with the long-awaited introduction of the Xbox Series X and S.

It might seem like a straight shot from its current $1.9 trillion evaluation to a $2 trillion as long as the company refrains from any spectacular unforced errors, however, there may be other intangible reasons Apple could sit atop the evaluation pile alone this year.

As mentioned, with its current trajectory, Microsoft should coast to $2 trillion by the end of the year, or sooner if it notches a couple of high-profile acquisitions such as Discord, but market factors such as investor fear, expectations, trading could kneecap its efforts.

Both Apple and Amazon suffered some forms of these market phenomenon's which left Apple dipping below $2 trillion on several occasions and putting a figurative ceiling on Amazon's evaluation which has kept the business dancing near but not obtaining its $2 trillion evaluation status.

Microsoft still has quite a bit of time to reach or even top $2 trillion in 2021, so long as they don't fumble the bag and announce its latest Xbox is made from baby parts or something.

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