Microsoft Corporation (NASDAQ:MSFT) continues building its leadership position in new tech. The company once known for its PC monopoly has innovated and moved into areas not imaginable just a few years ago. Now, as it announces a move into the Internet of Things (IoT), it takes yet another step to becoming a player in new tech. However, its market cap and valuation make Microsoft stock better for wealth storage than for growth.
Microsoft Has Finally Become an Innovative Company
In its latest move, Microsoft announced it would spend $5 billion on IoT. This investment will take place over a four-year period. While the announcement was light on specifics, they did mention IoT integrations will connect their operating system, cloud platform and devices. This action comes as the latest in a series of moves within the industry that show Microsoft is here to play and here to stay.
The leadership under current CEO Satya Nadella has for the first time in its history made MSFT an innovative company. Before Nadella, the most innovative thing Microsoft had done was to create and maintain its PC software monopoly. That monopoly made an astounding amount of money for Microsoft stock owners over the years.
Its MS-DOS operating system, the basis for Windows, served as a “quick and dirty operating system” it purchased from another company. MSFT needed this software to fulfill its agreement with IBM Common Stock (NYSE:IBM), and DOS began shipping on IBM PCs one month later. People often complained about the platform but stuck with it because it served as a known quantity that had become too difficult to change. Moreover, the new versions were not always improvements, as former users of Windows Vista will recall.
However, today’s MSFT embraces competition and innovation. The Microsoft Azure cloud platform has taken market share from Amazon.com, Inc. (NASDAQ:AMZN). Its Surface Studio PC presents a challenge to Apple Inc. (NASDAQ:AAPL) and its MacBook Pro. The Surface Studio’s 3D and Augmented Reality (AR) capabilities could challenge Apple’s long-held advantage with creative users. It should also help the old PC business, which has enjoyed a revival. Time will tell how IoT enhances all of these technologies.
Microsoft Stock Provides Safe Wealth Storage
Unfortunately, investors in Microsoft stock will see comparatively little reward from these advances. At a $710 billion market cap, MSFT has become too large to enjoy the outsized growth it saw at the height of the PC era. Moreover, the market has already priced these innovations into the stock.
Still, conservative, income-oriented investors should look at this stock. As I mentioned in an earlier article, much like businesses turn to Azure for data storage, investors should turn to Microsoft stock for wealth storage.
Microsoft stock arguably provides a better long-term investment than the bank, even for money protected by FDIC insurance. Investors who buy now will enjoy a dividend yield of 1.8%. Moreover, the dividend has increased every year since 2010. No bank today will offer that kind of return.
Furthermore, a $143 billion cash hoard and a AAA credit rating bolster MSFT stock. Interestingly, the government that backs the FDIC can make no such claims.
Also, since hitting a low of $1.45-per-share in 2015, double-digit profit growth has become the norm for Microsoft. The company earned $2.71-per-share in 2017, and the consensus estimate for 2018 net income stands at $3.63-per-share. That gives Microsoft stock a forward price-to-earnings (PE) ratio of around 23, which is below the current S&P 500 P/E. That level of growth dramatically lowers the risk of capital losses, even in the short-term.
Concluding Thoughts on Microsoft Stock
The market cap, valuation, and profit growth make Microsoft stock well-suited for wealth safety. Like MSFT stores data in the cloud, MSFT stock provides an excellent vehicle for wealth storage. With a dividend yield of 1.8% and growing, investors gain a modest return.
Moreover, the stock enjoys double-digit profit growth, a AAA credit rating, and a large cash position. This provides a level of safety that few entities of any kind can match. Microsoft stock will no longer make investors rich, but few vehicles can match MSFT for maintaining wealth.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.