Microsoft Corp. became the second public U.S. company in history to reach a market value of $2 trillion, riding on bets that its dominance in cloud computing and enterprise software will extend further into the post-pandemic world.
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Its shares rose 1.2% in New York on Tuesday, enough for the software company to become one of only two companies trading at such a high price, along with Apple Inc. Saudi Aramco also briefly hit that mark in December 2019, but it currently has a market value of about $1.9 trillion.
Since taking the helm in 2014, CEO Satya Nadellahas transformed the Redmond, Washington-based company into the world's largest cloud-computing software vendor. Microsoft is also the only major U.S. technology company to have so far avoided a recent wave of scrutiny from increasingly aggressive U.S. antitrust regulators, giving it greater freedom to both buy and expand its products.
Microsoft has gained 19% so far this year, outperforming Apple Inc. and Amazon.com Inc. as investors capitalize on expectations for long-term growth in both earnings and revenue and expansion into areas such as machine learning and cloud computing. The company’s third-quarter results, released in late April, beat expectations and showed strong growth across its business segments.
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Microsoft “does a lot of things and does them all well: gaming, cloud, automation, analytics, AI,” said Hilary Frisch, senior research analyst at Clearbridge Investments. “It’s an attractively valued name in the tech space and should benefit from both the opening up of the economy and a more pronounced shift to the cloud.”
While it took Microsoft 33 years from its founding to reach its first $1 trillion in value in 2019, the next one took about two years amid the surge in popularity of tech stocks before the Covid-19 pandemic and during the health crisis. Apple made Wall Street history when it reached $2 trillion last year.
Other U.S. companies that follow are Amazon, which has a market cap of about $1.8 trillion, and Alphabet Inc., which is valued at about $1.6 trillion.
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According to data compiled by Bloomberg, more than 90% of analysts recommend buying Microsoft. The average price target suggests an upside of about 11% from current levels.
Microsoft's cloud-computing business has been a central force behind the progress. According to data compiled by Bloomberg, the Intelligent Cloud business accounted for 33.8% of Microsoft's revenue in 2020, making it the largest of the company's three main divisions.
Nadella's strategic moves have positioned Microsoft to capitalize on business trends that have emerged during the global pandemic. Lockdowns and remote work have accelerated the transition to the company's digital conferencing software and prompted customers to accelerate modernizations of networks and software applications around the cloud. The software maker's Xbox game subscriptions are also luring users looking for ways to stay entertained during months of confinement.
