As Dow Posts Record, This Tech Stock Leads the Surge

Technology

Published: June 29, 2019 8:35 am

Last Updated: March 13, 2020 4:34 pm

The Dow Jones industrial average posted its best June rise since 1938, up 7.2% to 26,599.96. Its performance for the first half also was spectacular, a gain of 14.3%. One of America’s iconic tech stocks outpaced the other 29 in the index.

Microsoft Corp. (NASDAQ: MSFT) shares rose 31.9% so far this year to $133.96. It is up 220% in the past five years, to hit a market cap of $1.03 trillion. All the performance has come under CEO Satya Narayana Nadella, who was appointed to the top job in February 2014.

Much of Microsoft’s recent success has been based on its cloud computing business. In the most recent quarter, the period that ended March 31, total corporate revenue was up 14% to $30.6 billion. Net income rose 19% to $8.8 billion. Its cloud segment handily beat both. “Intelligent Cloud” revenue was up 22% to $9.7 billion, and its core Azure cloud operation bested that. Server products and cloud services revenue increased 27% (up 29% in constant currency), driven by Azure revenue growth of 73% (75% in constant currency). First released in February 2010, Azure has become the core of Microsoft’s success. Azure runs on and operates from Microsoft’s own data centers, primarily.

Microsoft’s cloud operations have benefited from impressive growth across the industry. In its recent cloud industry report, research firm Synergy reported:

[I]n Q1 the enterprise SaaS market generated well over $23 billion of revenue for software vendors and will hit a $100 billion annual run rate in the current quarter. The market continues to grow at almost 30% per year. Microsoft has a worldwide market share of 17% and continues to enhance its overall market leadership, thanks primarily to its dominance in the high-growth collaboration segment.

Those numbers put it well ahead of rivals Salesforce, Adobe and SAP.

Microsoft has one of the most valuable brands in the world, though it is among companies with the most corporate debt as well.

Hedge funds also have stampeded into Microsoft’s shares. Among the top 400 hedge funds by assets, in the first quarter, Microsoft was the top holding, ahead of Amazon, Facebook and Apple.

There is nothing in the way of Microsoft’s Dow leadership, which means the stock may end the year up 40% or more.