If you don’t follow the regular trials and tribulations of technology companies or have been living in a cave for five years, it might be surprising that Microsoft Corp. is poised to surpass Apple Inc. as the world’s most valuable public company. While the baton was passed briefly on Monday, it most likely won’t be long until Microsoft is firmly entrenched again as No. 1 in the world.
This won’t be surprising to regular readers, but it will be to people whose opinion about Microsoft was frozen in the days of the Zune and annoying Clippy. So how did Microsoft’s stock market value climb to the top of the mountain?
The near-term reason is Microsoft has been less damaged by US stock investors’ recent reversal of optimism about tech companies, which had been rewarded for fast growth above all else. And longer term, Microsoft has continued to roll as the go-to shepherd for corporate clients anxiously navigating technology changes in their industries.
Microsoft is the tortoise in a technology world obsessed with hares. We know how that race turned out.
Microsoft this year has steadily passed Google parent company Alphabet Inc., Amazon.com Inc. and now Apple by stock market value. Since a stock market rout in October battered big tech stocks around the world, Microsoft shares have sidestepped much of the carnage. Its shares dipped 8.5 percent since the end of September compared with 22 percent for Amazon and 25 percent for Apple.
It won’t be a surprise to tech enthusiasts that in the nearly five years under CEO Satya Nadella, Microsoft has focused on its strengths and taken advantage of corporations’ desire for help navigating technology changes. Microsoft has refashioned its products and how it sells them to capitalize on businesses’ desire to buy technology that helps future-proof their workforces and operations.
And that goes not only for Microsoft’s Azure cloud-computing service -- which competes with Amazon in helping businesses move digital file storage or website operations out of owned, hard-to-update farms of corporate computers -- but also Microsoft’s longstanding Office bundle of software, its database technology and its software for corporate sales departments. Even personal computers are having a mini-renaissance of late, which has helped Microsoft.
What Nadella has done isn’t a revolution, like Ford trying to become a “mobility” company instead of simply selling cars. Microsoft has increased revenue, profits and relevance by becoming even more Microsoft-y -- doubling down on its products for businesses and slimming or ditching its efforts in the up-and-down areas of consumer technology like smartphones.
It’s a tough contest, but if I’m picking the most effective big technology company CEO of the last five years, I’d take Nadella over Jeff Bezos of Amazon. No large technology company has operated as effectively both technologically and financially over that period.
It’s also true that Microsoft’s recent rise up the stock market rankings has a lot to do with what the company is not. It’s not Facebook and Google -- two giants caught up in vortexes about their advertising and data-harvesting business models and dealing with regulatory pressures around the world. It’s not Amazon, a company valued largely on growth that hasn’t been so hot lately. And it doesn’t generate most of its sales from a flatlining market, as Apple does in smartphones. Nor is Microsoft tied up much in the US-China trade tussle.
As tech shares have been battered in the recent US stock market downturn, other companies that mostly sell products to businesses rather than consumers, pay fairly large dividends and generate rich profits, such as Cisco and Oracle, also haven’t been hurt as much as Amazon and Google.
I’ve written before, however, that investor enthusiasm about Microsoft may have gotten carried away. The company’s stock now trades at about 22 times the company’s estimated earnings over the next four quarters, according to Bloomberg data. The last time Microsoft shares were this expensive for a long period of time, “The Passion of the Christ” was drawing lines at movie multiplexes.
As Monday’s ascent up the stock market rankings shows, investors long ago caught onto Microsoft’s strengths, even if there’s still a whiff of Zune hangover in the public imagination. It’s time to kill the disrespect for Microsoft for good.
Shira Ovide Shira Ovide is a Bloomberg Opinion columnist covering technology. -- Ed.
