Microsoft May Have Some Future Growth

Terry is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As we all know, Microsoft (NASDAQ: MSFT) has been a stagnant stock for a very long time. The return for Microsoft over the past 5 years has been a 31% increase in share price. During the same time the Dow Jones has gone up 44%. But despite that, picking almost any other technology stock would have yielded higher return during that time period. The good news going forward is that the stock price for Microsoft has gapped up, and I think it's due to one reason. The reason being that Microsoft has a big chance of gaining traction as a cloud play in the market.

Microsoft in the cloud

Don't get me wrong Microsoft does well in its other divisions, but the cloud seems like it will be a huge market. So what is the cloud? And why is it important for Microsoft? The cloud is a network of servers on the internet to store, manage, and process data instead of using a local server. The cloud market is estimated to be around $2 trillion dollars or more, and the revolution is just starting. One of the executives of Microsoft, the President of Server and Tools, states that Microsoft already has a huge grip on cloud computing with Office365/Azure platforms.

Partnership made in heaven

It seems that Microsoft is doing okay for starting off in the cloud, but I guess sometimes even the biggest of tech companies need assistance from one another. Microsoft has decided to partner with Oracle (NYSE: ORCL), and it seems both companies can benefit greatly from this partnership.

So how good is this partnership? It has many good aspects that will help both companies generate more revenue with their software. First of all, Oracle's software/databases will all be able to run on Microsoft's Azure cloud service. This will generate a lot more new users for Microsoft. Additionally, Microsoft will allow fully licensed, and supported Java in its cloud network. Oracle seems to be doing well with cloud as their service has gained an increase in revenue by 50% for the quarter. What's even more impressive is that Oracle added 500 new customers for the cloud in that same quarter.

The cloud has been nice to Microsoft as its risk in investing in the cloud has paid off. One of Microsoft's cloud products, Office 365, has made annual revenue of $1 billion. Microsoft has a long way to go, but I think that long term investors are now enjoying the climb in stock price. What's also great is that investors get paid a nice dividend to wait for this cloud computing growth. The dividend given to investors is 2.68% which is not that bad.

Amazon is the main competition

Amazon (NASDAQ: AMZN) is a huge competitor for cloud computing. So much so that Amazon made $2.1 billion in their web services division, and they are expected to make $6.2 billion by 2014. Also, Amazon is already investing heavily into its cloud web services division, putting in $1.4 billion to purchase a Seattle facility for storage.

Microsoft has a long way to catch up to Amazon in terms of cloud, but Microsoft does have the foundation to improve upon their existing service. Amazon will continue to build its operations for the cloud by increasing service capacity, and doing some heavy investing. The point must be reiterated that cloud computing is still new to the tech industry so it may be awhile before any of these companies see huge revenue from this sector.

Final thought

Despite heavy competition from Amazon, Microsoft may have some future growth in cloud computing. Microsoft has some problems in the Windows division, because of the shift away from desktop computing. The key thing, though, is that Microsoft is at least setting up for the future with cloud, and, at least for now, it has a chance to catch up to the big players like Amazon and create great value for its shareholders. I would keep my eye on Microsoft this year and see how well their cloud computing continues to penetrate the market. As mentioned before this cloud sector is huge, estimated in the trillions of dollars in the not-too-distant future.

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Terry Chrisomalis has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of, Microsoft, and Oracle.. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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