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Thinking big with Microsoft

05112020_MSFT

Thinking big with Microsoft

Hidden amongst the barrage of news over recent days was a particularly strong quarterly result by Microsoft (NASDAQ: MSFT) last week. What caught our attention was the framing of the long-term opportunity for the business by CEO, Satya Nadella.

“The way I think about the computing landscape going forward is, if you sort of said, at the highest of levels today as a percentage of GDP, tech spend is 5 per cent, we think it will double in the next 10 years. And if anything, this pandemic, perhaps, has accelerated that doubling.”

The implication of this comment is that global IT spend will increase from approximately US$4.4 trillion per annum currently, to approximately US$10.7 trillion per annum in 10 years from now. Said another way, there is more than US$6 trillion in incremental annual revenues for grabs.

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Nadella goes on to say:

“And in that context, what’s the large, the most secular need? It’s the need for distributed cloud infrastructure. It’s both needed for modernizing existing applications you have (and so that’s, by the way, 20 per cent penetrated. So, there is 80 per cent more that needs to move). But more importantly, there is going to be new application starts, which need infrastructure. And so, if you sort of add those up, I think that we are still in early innings…”

Now Microsoft Azure is rapidly becoming an important platform that underpins both existing third-party applications as they transition to the cloud, as well as new third-party applications that are being developed. Through this lens, Microsoft can almost be viewed as a shareholder in all third-party applications. So it would not be surprising to us if Microsoft benefited disproportionately from the incremental US$6 trillion in annual IT spend over the next 10 years described above.

And to put this into context, Microsoft’s annual revenue today is only US$150 billion. In 10 years’ time, it will very likely be very much higher.

Montaka owns shares in Microsoft. This article was prepared 04 November with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Microsoft you should seek financial advice.

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Andrew Macken is the Chief Investment Officer of the Montaka funds and the Montgomery Global funds. He established MGIM in 2015 in partnership with Montgomery.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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