The world’s largest tech companies further their advantage by building out extensive, global networks to deliver online services to businesses and consumers. This has never been an inexpensive endeavor, but the need for further sophistication and computing power has the bills growing larger each year and there are no signs of a slowdown on the horizon.

Take, for example, the largest three U.S.-based operators of cloud computing services. Amazon.com [stckqut]AMZN[/stckqut], Microsoft [stckqut]MSFT[/stckqut], and Alphabet Inc.’s[stckqut]GOOGL[/stckqut] Google had a combined $41.6 billion in capital expenditures and capital lease deals in 2017. That is up 33% from the previous year and represents an acceleration from the 23% growth in spending seen in 2016. Not all of this goes to data-center construction, though all three have identified network expansion as a major area of focus for their capital spending plans.

Source: Cloud Bills Will Get Loftier

After beating expectations in its first two FY 2016 earnings reports,Microsoft’s [stckqut]MSFT[/stckqut] multi-year turnaround seemed like it might finally have taken root. Unfortunately, its earnings miss last week came as a sharp rebuke to that idea, a fact not missed by investors.

To chart its path into the post-PC world, Microsoft has placed aggressive bets in growth markets, including big data and productivity tools. At the same time, many view Microsoft’s cloud-computing business as, perhaps, the company’s biggest opportunity, which is why investors should take note of the relatively weak performance of its cloud business this past quarter.

Though far from cataclysmic, Microsoft’s cloud business showed several signs of weakness in Q3, especially when considered in total. For starters, though growing faster than other reporting segments, Microsoft’s intelligent cloud business produced its slowest growth thus far in its fiscal 2016.

Source: Are Microsoft’s Weakening Cloud Margins a Cause for Concern?

Company name Microsoft Corporation
Stock ticker MSFT
Live stock price [stckqut]MSFT[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Good
Sales growth Poor
EPS growth Fair
P/E growth Poor
EBIT growth Poor

ANALYSIS

Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $7.87
Target stock price (averages with growth) $5.09
Target stock price (averages with no growth) $6.6
Target stock price (manual assumptions) $54.2

The following company description is from Google Finance: http://www.google.com/finance?q=msft

Microsoft Corporation is engaged in developing, licensing and supporting a range of software products and services. The Company also designs and sells hardware, and delivers online advertising to the customers. It operates in five segments: Windows & Windows Live Division (Windows Division), Server and Tools, Online Services Division (OSD), Microsoft Business Division (MBD), and Entertainment and Devices Division (EDD). The Company’ products include operating systems for personal computers (PCs), servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools. In July 2012, the Company purchased Edgewater Fullscope’s Process Industries 2 (PI2) software and intellectual property. In July 2012, Comcast Corp. acquired the Company’s 50% stake in MSNBC.com. In October 2012, it acquired PhoneFactor Inc. On July 18, 2012, it acquired Yammer, Inc. (Yammer).

 

 

Confident Investor comments: I realize a large number of people use and like Microsoft’s products but currently they are on a negative growth trajectory. This is a good example of not just buying the companies that make products you like. At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.
 

Company name Microsoft Corporation
Stock ticker MSFT
Live stock price [stckqut]MSFT[/stckqut]
P/E compared to competitors Good
MANAGEMENT EXECUTION
Employee productivity Good
Sales growth Poor
EPS growth Poor
P/E growth Poor
EBIT growth Poor
ANALYSIS
Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $19.16
Target stock price (averages with growth) $22.99
Target stock price (averages with no growth) $25.12
Target stock price (manual assumptions) $29.56

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.