Microsoft Likely To Swing Up Soon
Gayatri is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Microsoft (NASDAQ: MSFT) has been trading sideways the past few quarters due to underlying weak PC demand and increasing competition based on industry changes. I believe that the investors are undervaluing the company’s ability to maintain and grow its revenues in the core business as well as in the ancillaries. With the upcoming new product life cycles, innovations and entry in new industry to act as strong catalysts, I believe that Microsoft will generate incremental revenues both in medium and longer term.
Key Catalysts:
All eyes on Windows 8:
Given the weakening demand for PC, Microsoft’s first move for tablet strategy is the launch of Windows 8. With the rising competition from Apple and Android based devices, I believe that Windows 8 is a solid product with its focus on tablet PCs & touch screens. It will be available in four major editions: Windows 8, Windows 8 Pro, Windows 8 Enterprise and Windows RT. The first three have almost the same hardware requirements as that of Windows 7. The latter however, runs on tablet computers with ARM architecture.
I believe that the launch of Windows 8 might gain a reasonable traction in the fall. Though Microsoft might not surpass iOS or Android anytime soon, I believe it can become the third-biggest player over time. Furthermore, I believe that the corporate PC refresh cycle plus migration to windows 7 will generate good revenues for Microsoft till the launch happens.
Surface, a tablet PC to compete with the Apple and Google:
Microsoft’s recent announcement of entering in tablet hardware market with ‘Surface’ has raised optimism on its tablet strategy. The availability of Surface with Windows RT, powered by NVIDIA (NASDAQ: NVDA) as well as Windows 8 Pro, powered by Intel (NASDAQ: INTC) will give increasing choices to users interested in different price points and form factors. The store expansion plans of Microsoft will support Surface’s distribution; making the revenues touch higher levels.
Other Catalysts in line:
The bullish call on Microsoft is further strengthened by catalysts like:
- Unveiling of Office 2013 which is fully integrated with touch, can be considered a probable quell to mobile version of office.
- Products like Office 365, Bing, Azure Dynamics CRM being used in volumes by customers giving Microsoft an opportunity to capitalize on rising cloud computing
- Strengthening financial position from increasing search volumes with Windows Phones.
The Bottom line
Microsoft is currently trading at a forward PE of 9.15x which is at a discount from Apple’s (NASDAQ: AAPL) PE of 12x and Google’s (NASDAQ: GOOG) PE of 13.36x.I believe that the company can generate incremental revenues from Windows 8 launch and the upcoming Surface tablet. With its upcoming new product life cycle refresh, I expect Microsoft to grow in line with its peers like Apple and Google. As the sales of Windows 7 is not slowing down and Microsoft is increasing its hold on cloud computing, I believe that the discount to its peers will not be a long term trend and hence buying Microsoft should make sense at these levels.
GayatriSharma has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, Intel, and Microsoft. Motley Fool newsletter services recommend Apple, Google, Intel, and NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
