Stock Market Sell-Off: Is Microsoft Stock a Buy?

The 2022 stock market sell-off has caused stocks of many of the world’s most valuable companies to plummet. The tech industry has been particularly hard hit as rising inflation has slowed consumer spending and forced many households to cut their budgets. actually, Nasdaq-100 Technology Sector The index has plummeted 37% so far.

As a leader in the PC industry Microsoft‘s (MSFT 0.62%) The stock was not damaged through the market decline. Shares are down 28% since January, largely driven by macroeconomic headwinds.

Despite the share price decline, Microsoft stock is up 192% over the past five years. The company offers investors a strong business that is absolutely worthwhile during market sell-offs. Let’s evaluate.

Microsoft’s strength lies in diversification.

Microsoft is best known for playing an influential role in the PC industry with its dominant Windows operating system and popular Office software such as Word, Powerpoint, and Excel. But the company has also made significant inroads into gaming and cloud computing, with brands like Xbox and Azure.

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Microsoft’s first quarter 2023 revenue increased 11% year-over-year to $50.12 billion, while sales in the Personal Computing segment declined slightly, but operating income rose 6% to $21.5 billion.

Microsoft’s diversification within its business has gone a long way toward securing growth in the first quarter of 2023. For example, the tech giant’s earnings showed a healthy split between the three sectors. Productivity and business processes accounted for 32.8% of revenue, intelligent cloud 40.5%, and more personal computing 26.6%.

More Personal Computing made up for 0% revenue growth in Microsoft’s most recent quarter, with a 20% increase in cloud computing and a 9% increase in productivity and business processes, including revenue from Office software and LinkedIn. PC loss.

growing market share

The Windows company’s priorities for diversification have also led it to dominate market share in several lucrative industries.

For example, Microsoft has maintained over 70% market share in PC operating systems since at least 2013, and had a 76.33% share in June 2022. alphabetof Chrome OS and apologizeIn 2022 of Mac OS, Microsoft had a 73.72% market share in operating systems in December 2021.

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Its dominance in operating systems has helped the tech giant gain market share in other industries such as gaming, and the $195 billion industry is projected to grow at a CAGR of 14.1% through at least 2030. Microsoft Netflix– Provided game subscription services such as Xbox Game Pass on Xbox consoles in 2017, and expanded to PCs in 2019. The move has increased Game Pass’ subscriber reach, growing from 10 million in 2020 to 25 million in January 2022.

Additionally, the company’s cloud computing service, Azure, has rapidly grown its market share in a $217 billion industry. As of Q3 2022, Azure had a 21% market share in cloud computing, Amazon Web services’ 34%. Given that the industry is expected to grow at a compound annual growth rate of 14.8% from 2022 to 2030, according to Grand View Research, Microsoft is firmly positioned to see significant gains going forward.

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Moreover, as of September 30, Microsoft’s free cash flow was $63.33 billion, well above Alphabet’s $16.08 billion and Amazon’s -4.97 billion. If fears of a 2023 recession materialize, Microsoft’s free cash flow suggests Microsoft is well-prepared to invest in its business and manage further downturns.

With a diversified business, market share gains in several promising industries, and a price-to-earnings ratio 26-27% lower than in January, Microsoft is a great buy in a stock market sell-off.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Alphabet executive Suzanne Frey is a board member of The Motley Fool. Dani Cook has no positions in the stocks mentioned. Motley Fool sits and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Microsoft, and Netflix. The Motley Fool recommends the following options: March 2023 $120 long call to Apple and March 2023 $130 short call to Apple. The Motley Fool has a disclosure policy.

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