Microsoft Corp. assumed its place in the history books as just the second U.S. public company to reach a $2 trillion market value, buoyed by bets its dominance in cloud computing and enterprise software will expand further in a post-coronavirus world.
Its shares rose as much as 1.1% to $265.64 on Tuesday in New York, enough for the software company to join Apple Inc. as one of only two companies trading at such a lofty value. Saudi Aramco eclipsed that threshold briefly in December 2019, but currently has a market value of about $1.9 trillion.
Since taking the reins in 2014, Chief Executive Officer Satya Nadella has reshaped the Redmond, Washington-based company into the largest seller of cloud-computing software, counting both its infrastructure and Office application cloud units. Microsoft is also only one of the biggest U.S. technology companies that have so far evaded the recent wave of scrutiny from increasingly active American antitrust regulators, giving it a freer hand in both acquisitions and product expansion.
Microsoft has gained 19% so far this year, outperforming Apple and Amazon.com Inc., as investors piled into the stock on expectations of long-term growth for both earnings and revenue, and expansion in areas like machine learning and cloud computing. The company’s third-quarter results, released in late April, topped expectations and demonstrated strong growth across its business segments.
The tech-heavy Nasdaq 100 Index outperformed the S&P 500 Index on Tuesday after Federal Reserve Chair Jerome Powell reiterated his view that inflation will be short-lived. Both benchmarks rose to session highs after Powell’s comments with the Nasdaq 100 up 1.1% and the S&P 500 up 0.7%.
“Microsoft checks all the boxes: it is in the markets that investors favor, it offers strong and sustainable growth, and it remains very well-positioned to capitalize on the long-term secular trends we see in technology,” said Logan Purk, an analyst at Edward Jones. A $2 trillion valuation “is warranted, given how it has pivoted toward the cloud, and it remains attractively valued even given the strong performance.”
Co-founded in 1975 by Bill Gates and Paul Allen, Microsoft created the personal-computer software industry and dominated the market for PC operating systems and Office software for years. As internet browsers like Netscape grew in importance in the 1990s, Microsoft raced to introduce its own product that it bundled with Windows software. That led to a bruising antitrust lawsuit, filed in 1998 by the U.S. government, with a federal judge finding the company guilty in 2000.
Though Microsoft avoided a breakup of its business, the penalty the government originally sought in the antitrust case, the next decade saw the software maker largely miss the advent of mobile software, social media and internet search, falling behind newer rivals such as Google and nimbler ones like Apple. With a series of strategic shifts, in the past seven years, Nadella has restored Microsoft to the vanguard of technology with a focus on cloud, mobile computing, and artificial intelligence.
While it took Microsoft 33 years from its IPO to reach its first $1 trillion in value in 2019, the next trillion only took about two years amid a surge in popularity in tech stocks before the Covid-19 pandemic and during the health crisis. Apple made Wall Street history when it reached $2 trillion last year.
Among U.S. names, the pair are trailed by Amazon, which has a market cap of nearly $1.8 trillion, and Alphabet Inc., which is valued at around $1.6 trillion.
According to data compiled by Bloomberg, more than 90% of analysts recommend buying Microsoft, while none has the equivalent of a sell rating on the stock. The average price target points to an upside of about 11% from current levels.
Microsoft’s cloud-computing business has been a central force behind the advance. According to data compiled by Bloomberg, the Intelligent Cloud business accounted for 33.8% of Microsoft’s 2020 revenue, making it the largest of the three major segments for the first time, and up from 31% in 2019. The division showed revenue growth of 24% last year, compared with the 13% growth in Productivity and Business Processes, and the 6% growth of Microsoft’s More Personal Computing unit.