Microsoft Stock: A.I. Revolution to Spark Huge Growth?

Posted On August 11, 2017 4:21 pm

Microsoft's office building in Europe

One of Microsoft’s office buildings in Europe. (Photo Source: Wikipedia Commons)

When Satya Nadella assumed became Microsoft Corporation (NASDAQ:MSFT) CEO in 2014, he announced a Cloud-first, Mobile-First strategy for the company. Within three years, Mr. Nadella turned around the company that was struggling to find a direction. Microsoft stocks are up 23% over the last 12 months.

The company is on its way to become a Cloud juggernaut. Microsoft Azure Cloud sales grew by 97% in the fiscal fourth quarter of 2017. The company has a Commercial cloud revenue of $18.9 billion on an annualized basis, which is close to the $20 billion target set by Microsoft for this year.

Microsoft Cloud growth dwarfs that of Amazon Web Services, which has 28% market of the global public cloud market. Microsoft has 11% global Cloud market, but its growth trajectory is beating Amazon with a clear margin.

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But Nadella is now changing the focus of the company amid a drastic shift in the industry environment. In a latest SEC filing, Microsoft Corporation (NASDAQ:MSFT) announced that its primary focus will now be Artificial Intelligence (AI). Analysts think that this is a timely transformation, as AI is expected to reach a market worth of over $16 billion by the end of 2022. Microsoft has already started several key acquisitions and moves in the AI market.

In 2016, Microsoft Corporation (NASDAQ:MSFT) quietly acquired SwiftKey, a keyboard app that predicts what a user would type based on the existing keystrokes. Microsoft paid a whopping $250 million for the app. Microsoft recently acquired an AI-based chatbot called Genee. Genee makes Office 365 more smart and usable for mobile users.

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Users can interact with Office apps through Genee and get their daily tasks done in an efficient manner. In January this year, Microsoft Corporation (NASDAQ:MSFT) acquired a Canadian AI startup Maluuba, which can understand words and perform basic reasoning. Maluuba’s system made headlines earlier this year by beating famous players in Pac-Man game. Microsoft’s personal assistant app Cortana is deemed more powerful than Apple’s Siri by most of the industry analysts. Microsoft is also using AI to improve its Bing search results.

Microsoft Corporation (NASDAQ:MSFT)’s revenue stream is very strong amid the company’s strategy of constant changes and proactive strategy. In the fourth quarter, LinkedIn contributed a whopping $1.1 billion in revenue. Office segment grew by 5%. The best thing about Microsoft Office is that most of its revenue is now coming from subscriptions rather that licenses. Subscription model is more lucrative and costs less than other business models.

After the latest quarterly report, Cowen’s analyst Gregg Moskowitz upped his price target on Microsoft Corporation (NASDAQ:MSFT) to $80 and reiterated an “Outperform” rating on the stock.

Microsoft stock is up more than 15% since the start of this year.

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