Blogs -Where’s The M In FAANG? Here’s Why 2020 Belongs To Microsoft
Featured Post

Where’s The M In FAANG? Here’s Why 2020 Belongs To Microsoft


June 26, 2020

author

Beth Kindig

Lead Tech Analyst

This article was originally published on Forbes on Jun 26, 2020,02:56pm EDT

When the acronym FANG was created and later extended to FAANG, tech investing was dominated by mobile, advertising (led by mobile), over-the-top streaming and e-commerce. Today, tech stock investors would be remiss to not have cloud in their tech portfolio as the category has proven to be secular and insulated from economic drawdowns.

Microsoft is a central hub to the cloud trend with nearly every segment of its revenue driven by cloud except PCs/Surface and gaming, although gaming too will shift towards cloud. With Microsoft being nearly a pure play in cloud computing while boasting a $1.5 trillion market cap, the talking heads in media may need to find a new acronym.

I’ve covered the sheer supply of cloud software companies potentially weighing on returns in the coming months as the market begins to sort the winners from the losers this year. There are likely to be cutbacks across all budgets and these covid-19 cutbacks did not show up yet in the first quarter due to the limited, two-week exposure in March before companies started reporting (this lack of exposure in Q1 may seem obvious but the market has certainly not priced this in).

Meanwhile, Microsoft stands to benefit regardless of which cloud software companies pull ahead. Hundreds of cloud software companies crowd the public and private markets yet they all funnel into cloud infrastructure. This is the common denominator.

Hybrid Cloud Accelerated by Covid-19

Satya Nadella made a bold statement in the last earnings call that the company had seen two years’ worth of digital transformation in two months. He cited a surge in demand from the structural changes due to companies quickly reorganizing.

The coronavirus shutdowns accelerated cloud usage from current customers yet the most important impact is that it forced slow-to-adopt companies and industries to migrate to the cloud overnight. These slower-moving companies are more likely to adopt a hybrid cloud strategy which is where Microsoft excels over the competitors.

My original thesis when I began covering Microsoft nearly two years ago was that the company would rival AWS due to its focus on hybrid cloud. Historically, Microsoft was built around on-premise and the company is well situated to assist in a more conservative, slow migration, especially for enterprises with significant intellectual property or unique security concerns. According to a 2018 survey, the top reasons for using hybrid cloud include controlling where important data is stored, at 71%, and using cloud for backup and disaster recovery, at 69%.

Hybrid cloud allows for scenarios where customers can keep their most sensitive data on their own servers while sending workloads to the private or public cloud that gain an advantage from mining data more efficiently and require improved accuracy and productivity. Azure’s strength in hybrid computing has made it the main player in the industry with the product being used by 95% of Fortune 500 companies.

Microsoft’s Windows operating system has run on servers for decades, and it was a natural extension to offer Azure Cloud to run on-premise. Specifically, the company’s presence in traditional on-premise deployments of server and SQL databases have propelled Azure forward as an obvious choice for public and hybrid cloud deployments. This is due to being the path of least resistance for on-premise to Azure.

This prompted my prediction that Microsoft would beat Amazon in a contract for the Department of Defense and I believe Microsoft will win yet again from the coronavirus shutdowns for the same reason.

Azure’s strength in offering both on-premise and cloud in a hybrid solution has prompted Amazon to chase Microsoft with recent efforts to improve its hybrid strategy. According to a Goldman Sachs survey pre-covid, the majority of executives preferred Microsoft Azure over AWS. The survey is done bi-annually and Microsoft has been ticking upwards in the results since 2017. With that said, AWS is capturing an estimated 200% more revenue than Microsoft on cloud infrastructure at $9 billion for AWS compared to $4.33 billion on Azure (per analysts).

Notably, the Goldman Sachs survey may not have taken into account that outside of the Fortune 500, AWS has a loyal startup and SMB following, and is also popular with agile enterprises that scale quickly, like Netflix and Facebook. Often times, these companies look outside Microsoft’s walled garden.

Sign up for I/O Fund's free newsletter with gains of up to 403% - Click here

For comparison purposes, some of Microsoft’s offerings are cheaper than AWS while having a larger global data center footprint. In the most recent earnings report, Microsoft stated it had more data center regions than any other cloud provider. New center regions announced in this quarter are Spain and Mexico. It plans to invest $1.1 billion over five years in Mexico. In Spain it plans to open Azure regions and also expand Telefonica relationship. This is especially helpful as compliance regulations require local data storage.

Halo Effects of Microsoft Teams

The story of the year may very well be cloud productivity apps. Microsoft Teams, though not exactly a verb, has been seeing rapid growth among Office 365 users. According to the recent earnings report, Microsoft Teams has increased 70 percent quarter-over-quarter to 75 million daily active users. This is up from 44 million daily active users in March. Perhaps even more impressive, Microsoft saw 200 million meeting participants in a single day in April.

This isn’t to say that Microsoft Teams will wipe out competitors outside the Office software ecosystem but it’s certainly going to help the company protect its turf. Zoom Video is likely to hold more mindshare as consumers can also enjoy HD video and office workers can share video links seamlessly outside of Microsoft’s enterprise walled garden. Slack is likely to lead on innovation as a developer and programmer favorite. After all, AWS is still in the lead over Azure and these customers will want a Microsoft alternative.

(Disclosure: I’m an investor in both Zoom Video and Slack and recommend these stocks to my premium service).

For the Fortune 500 and the 250 million who don’t mind Microsoft’s walled garden then Microsoft Teams offers valuable collaboration features, such as sending files within the apps, and holding video or audio calls. As of now, 20 organizations with more than 100,000 employees use Teams with Accenture being the first company to surpass 500,000 users.

Beyond enterprise companies, Microsoft Teams is also seeing inroads into education and health care from the coronavirus shutdown. According to the fiscal Q3 earnings call, more than 183,000 educational institutions rely on Teams with an emphasis on global education, including the United Arab Emirates, which has over 350,000 students using Teams, and Italy, which moved over 80,000 students to Teams in just three days.

The health care industry has 34 million users on Teams, including in New York and in the UK. Microsoft also launched its first industry-specific cloud offering that allows organizations to work horizontally across apps, like Dynamic 365 and Azure IoT, for virtual visits, chatbot assessments, and remote health monitoring.

The CDC and various healthcare systems are using Microsoft Health Bot Service to build and deploy AI-powered virtual assistants that reduce that workload on emergency services. As of early April, about 1200 instances of covid-19 bots had serviced 18 million individual users and served 160 million messages.

Microsoft also expanded Teams recently with the Booking app, which allows healthcare providers to schedule, manage and conduct provider-to-patient virtual visits with Teams. Depending on the size of the organization, this could be a competitor to Teladoc.

Conclusion:

Microsoft has many inroads into cloud and is nearly omnipresent in this category. There is a halo effect that allows for upgrades into premium products and increased renewals. When it comes to industry specific data needs, such as health care, Microsoft will also be a strong competitor for its experience in strict compliance across data-driven environments. I believe Microsoft’s biggest strength will take center stage this year, which is massaging the more conservative enterprises to adopt cloud with hybrid architectures. Teams, as well, could not be in a better position to strengthen the walled fortress.

Gains of up to 403% from our Free Newsletter.

Here are sample stock gains from the I/O Fund’s newsletter --- produced weekly and all for free!

+344% on Nvidia

+403% on Bitcoin

+218% on Roku

*as of March 15, 2022

Our newsletter provides an edge in the world’s most valuable industry – technology. Due to the enormous gains from this particular industry, we think it’s essential that every stock investor have a credible source who specializes in tech. Subscribe for Free Weekly Analysis on the Best Tech Stocks.

If you are a more serious investor, we have a premium service that offers lower entries and real-time trade alerts. Sample returns on the premium site include 324% on Zoom, 601% on Nvidia, 445% on Bitcoin, and 4-digits on an alt-coin. The I/O Fund is audited annually to prove it’s one of the best performing Funds on the market with returns that beat Wall Street funds. 

beth

More To Explore

Newsletter

https://images.prismic.io/bethtechnology/93644c8f-e9e6-4b61-944f-d7ebc957628a_Palantir+Stock+Surges+From+Artificial+Intelligence+Platform.jpg?auto=compress,format

Palantir Stock Surges From Artificial Intelligence Platform

Palantir’s Q4 earnings confirmed an acceleration in its US commercial business as it closed out its first GAAP profitable year. Shares are reflecting the optimism surrounding Palantir’s commercial seg

February 20, 2024
AI Chip

AI Driving Acceleration For Big 3 Cloud Stocks

Big Tech’s participation in the market’s push to all-time highs is becoming increasingly narrow, with Nvidia, Meta, Microsoft and Amazon serving as the primary contributors to 2024’s rally.

February 13, 2024
Apple Can't Save This Tech Rally

Apple Can’t Save This Tech Rally

In this article, I lay out both the bull and bear cases for 2024 and beyond. Interestingly, both are calling for a level of volatility in 2024 that will, at least, retrace the rally we’ve seen since N

January 31, 2024
Coinbase, Robinhood: Examining The Impact Of Spot Bitcoin ETFs

Coinbase, Robinhood: Examining The Impact Of Spot Bitcoin ETFs

The SEC approved nearly a dozen spot Bitcoin ETFs on January 10 in what was heralded as a “watershed” moment for the crypto industry, opening the door for investors to gain exposure to Bitcoin without

January 30, 2024
Tesla Store

Tesla Q4 Earnings Preview: Margins Likely To Slip Again

Tesla’s Q4 earnings are on tap after the market close on January 24, closing up a year in which aggressive price cuts helped the automaker top Q4 delivery estimates reach a new record and narrowly bea

January 23, 2024
Social Media Stocks: One Metric Shows Meta's Clear Leadership

Social Media Stocks: One Metric Shows Meta’s Clear Leadership

Social media stocks Meta (META), Pinterest (PINS), and Snapchat (SNAP) enjoyed strong gains in 2023 as the broader ad market stabilized and fundamentals improved. Social media ad spend is expected to

January 16, 2024
Nvidia Building

Five Top Stocks Of 2023: Year In Review

The Nasdaq 100 capped off 2023 with a return of +53.8%, erasing 2022’s losses and recording its highest annual return since 1999. This year had countless winners, but 5 stocks surprised and shocked th

January 09, 2024
Ad Spending Growth to Accelerate in 2024

Ad Spending Growth to Accelerate In 2024

Ad-tech stocks have generally enjoyed strong returns in 2023, buoyed by a rather fierce tech rally. Ad spending growth showing initial signs of stabilizing in the back half of the year, with ad spend

January 01, 2024
My Firm called the Bitcoin's Bottom; Here is Where the Price Goes Next

My Firm called the Bitcoin’s Bottom; Here is Where the Price Goes Next

Bitcoin is susceptible to a noisy, bifurcation between bulls and bears with extreme statements, such as: “Bitcoin will go to a $1 million” or “Bitcoin is a ponzi scheme and will go to $0.” The truth i

December 21, 2023
Palantir Building

Palantir, Three Other Cloud Stocks Poised For An Acceleration In 2024

Cloud stocks have been a mixed bag for investors heading into the end of the year, as a handful of names — Confluent, Sprinklr, HashiCorp, Bill, Paycom — plunged following their earnings reports with

December 19, 2023
newsletter

Sign up for Analysis on
the Best Tech Stocks

https://bethtechnology.cdn.prismic.io/bethtechnology/e0a8f1ff-95b9-432c-a819-369b491ce051_Logo_Final_Transparent_IOFUND.svg
The I/O Fund specializes in tech growth stocks and offers in-depth research for Premium Members. Investors get access to a transparent portfolio of 30 positions, a private forum, webinars, and real-time trade notifications. Sign up for Premium.

We are on social networks


Copyright © 2010 - 2024
Get Free Weekly Analysis on the Best Tech Stocks