A $1,000 investment in Microsoft at the tail end of 2016 would have been worth a little over $4,000 today -- that's how much the stock has appreciated in recent years. And if you're thinking about investing in Microsoft, you have to read this guide first. It will equip you with everything you need to know about Microsoft's business and its investment potential.
Table of Contents
Learn How to Buy Microsoft Stocks in 3 Easy Steps
Find a Broker
A reputable broker is an asset to you because they provide the necessary analysis tools and customer support to help you achieve your investment objectives.
Analyze Microsoft's chart
One of the tools that your broker provides you is a charting application where you'll be able to visualize Microsoft's chart. This would be essential in forecasting the direction of Microsoft's stock price.
After you've done your analysis, the last step is to place your trade, but it doesn't stop there. Your role now is to manage your position until you exit it.
Microsoft Company Overview
Microsoft is one of the biggest tech companies in the world. It’s the third-largest by market capitalization with $1.76 trillion, which is just behind Apple and Saudi Arabia's Aramco. The company is best known for its software system that rules over most personal computers around the globe.
And it has also made its mark in the video game industry with its suite of Xbox products. Apart from that, Microsoft has also diversified into consumer electronics, digital services, cloud business services, among others. This makes Microsoft highly competitive in a broad range of industries.
Microsoft is headquartered in Redmond, Washington, and is headed by its long-serving CEO, Satya Nadella.
Microsoft Business Model and Revenue Streams
Microsoft's entire revenue is derived from three major segments: Intelligent Cloud, Productivity and Business Processes, and Personal Computing.
Its Intelligent Cloud segment consists of its server products and cloud services, including Azure, SQL Server, Windows Server, Visual Studio, System Center, and GitHub.
On the other hand, its Productivity and Business Processes segment involves products and services for productivity, communication, and information services. Microsoft’s Office 365 subscriptions, Microsoft Teams, Skype for Business, Linkedin Premium Subscriptions, and Dynamics 365 fall under this segment.
Lastly, its Personal Computing segment is composed of its Windows OS license sales, Xbox products, Surface and PC accessories, and Search.
These segments' revenue share in the reported figure for Q2 FY 2021 are on par with each other. Its largest revenue stream still comes from Personal Computing with 35% and is followed by Intelligent Cloud with 34% and Productivity and Business Processes with 31%.
History of Microsoft
Microsoft was founded in 1975 by Bill Gates and Paul Allen in a garage in Albuquerque, New Mexico.
However it wasn't until 1980 when the company entered the software business with Xenix, their version of the operating system Unix, and later that year MS-DOS, which would be bundled with IBM computers as part of a deal between the two companies.
That deal would become the initial launchpad for Microsoft's success as it allowed them to develop what Paul Allen wrote as a "pivotal product of the era." What's more, Microsoft would retain the rights to the software, allowing them to become a major software vendor.
Microsoft incorporated a year later and filed for an IPO in 1986 at $21 a share. The company wounded up raising $61 million and was dubbed "the IPO of the year."
Microsoft Windows version 2.0 was released the next year, and the early version of today's Office suite apps was introduced in 1989. By 1995, the company released Windows 95, which included the technology for connecting to the internet (e.g., dial-up networking, TCP/IP) and the web browser Internet Explorer.
And in 1998, the company introduced the upgraded version of 95, Windows 98. After two years, Bill Gates stepped down as CEO and was replaced by Steve Balmer. And the following year, in 2001, Microsoft launched Xbox and Windows XP.
The company made its first entry into the cloud computing space in 2008 with Azure Services Platform. Then it ventured into making its hardware in 2012 with the Surface.
In 2014, Balmer was replaced by Satya Nadella, and the subsequent year, Windows 10 was released. Microsoft would make its biggest acquisition in its entire history two years later when it bought LinkedIn for $26 billion.
And in 2020, despite the pandemic, Microsoft recorded its highest revenue to date at $143 billion.
Brokers That Offer Microsoft Shares
Below is our list of the best brokers that offer trading on Microsoft and other stocks. From our review, these brokerages have the most optimal tools that support active trading as well as long-term investing, which you can undoubtedly benefit from regardless of your investment horizon.
Should I Invest in Microsoft Stock?
If you think that Microsoft's current price per share, which is $233 as of writing, has no more room to grow higher, then you might want to take a second look at its fundamentals.
There is a reason why it posted its highest revenue amid the most unfavorable business climate in recent times. For instance, its video gaming businesses saw an uptick in revenue last year, primarily driven by Xbox content which saw sales jump to $1.2 billion.
Its cloud business in the December-quarter results reached $16.7 billion in revenue. But as the world transitions to all things cloud, many estimate that this segment could top $300 billion by 2030.
Therefore, it would be asinine to count out Microsoft in any investment portfolio.
Microsoft Stock Investment Potential
Microsoft's stock grew 40% in 2020 and is nearly 5% up since the start of the year. To forecast its potential growth, you could look at its annual growth rate, which is 35.61% over the last five years. This gives you a rough estimate of how much your capital would be if you allocated them to Microsoft stock.
Microsoft's EPS also reached the $5 mark for the second straight year and is even higher than 2019 at $5.88. This means that the company has earned more profits for each outstanding share, making its stock a lot more attractive to potential investors.
What Kinds of Investors Should Include Microsoft in Their Portfolios?
Apart from its excellent upside potential due to the strength of its core segments, Microsoft is also a regular dividend payer. Last year, the company paid $0.51 a share each quarter, and that has recently increased to $0.56, which makes its dividend yield 0.99%. Therefore, investors seeking capital growth from a blue-chip stock that provides a steady income supplement can find all of these in Microsoft.
How Much Should I Invest in Microsoft
The exact amount you wish to invest in Microsoft will largely depend on a few factors. One is your investment objective. Now that you understand its business and investment potential, you have a rough estimate of what your potential returns are going to be.
You must also think about the frequency of your investments, i.e., do you plan to make regular purchases of its stock or plan to invest one lump sum.
And, of course, consider your risk tolerance. Ask yourself what amount is comfortable for you that if, in any case, things don't turn out the way you expect, you'll still have your shirt tomorrow.
How to Buy Shares in Microsoft Stock?
As touched on, the first order of business is to get your trading account all set and ready for trading. The initial process starts with you filling up your broker's online application form. Once the form is submitted, brokers will need a few working days to approve it.
Once verified, your broker will contact you via your preferred communication channel to inform you that your account's been verified and that it's ready for funding. From here, you must choose among your broker's available funding methods and select the most applicable one for your case.
Brokers normally have these deposit options: electronic bank deposits, wire transfers, check, and account transfers from another firm.
It can take between a few minutes to a few days before your account reflects the amount you deposited, and this depends on the method you used. Electronic bank transfers are the quickest, which provides almost instantaneous transfers.
And finally, when you see the exact amount in your available trading balance, you can begin trading.
Buy Microsoft Shares Using a Broker
Before getting an account approved with a broker, you must also accomplish certain requirements. As mentioned, you need to fill up an application form, but you also need to provide some necessary documentation. For instance, your application must include identity proof, like your Social Security Number (SSN), passport, driver's license, etc.
Brokers would sometimes ask for your employment details and request proof of income too. And if you requested special trading privileges like margin and options trading, brokers may also require details about your investment experience, investment objectives, and net worth.
Buy Microsoft Shares With a Direct Stock Purchase Plan (DSPP)
A Direct Stock Purchase Plan (DSPP) is another way to buy Microsoft shares. A DSPP allows you to purchase shares directly from the company without a broker. But before you subscribe to a DSPP, you should know that there is usually an initial setup fee and an initial investment amount that varies by company. The company's transfer agent provides this breakdown of costs, and you need to get in contact with them to learn more about this program.
Microsoft does offer a DSPP, and the transfer agent to contact is Computershare.
Frequently Asked Questions
Analysts estimate that Microsoft's upside potential in 2021 is around 14% and is mainly due to the recent developments surrounding its flourishing cloud business.
Yes, Microsoft is a consistently profitable business. Its net income in the last three years totaled $100 billion.
Regardless of whether you're trading Microsoft on a long-term basis or even a short-term basis, there is an opportunity to profit from its 2.36 million trading volume and average daily volatility of $19.
The trading platform best equipped for trading Microsoft shares must have a comprehensive list of technical tools to analyze its price movements accurately.
Trading Microsoft's stock follows the standard trading hours in the U.S., which is from 9:30 am to 4 pm ET Monday to Friday.
Microsoft is listed on the tech-heavy NASDAQ under the symbol MSFT.