Yes, Microsoft is Racing to a $1 Trillion Market Cap Too

Posted on March 27, 2018 by Paul Thurrott in Microsoft with 10 Comments

With Amazon having recently surpassed Alphabet/Google’s market capitalization, analysts are turning their attention to an often-ignored technology giant, Microsoft. Which, like other top tech firms, is now poised to hit a market capitalization of $1 trillion in the coming year.

This shouldn’t be news. Microsoft is, after all, one of the world’s largest companies, period. And that’s true no matter how you measure its value.

Market capitalization is one such way. It is calculated by multiplying the total number of a company’s shares by its current share price. And today, the world’s five largest firms by market cap are Apple ($876.64 billion at the time of this writing), Amazon ($753.20 billion), Alphabet/Google ($730.73 billion), Microsoft ($722.09 billion), and Berkshire Hathaway ($494.04 billion).

A couple of things stand out to me when I look at those numbers.

First, the top four are all U.S. technology giants. Second, there is a big market cap delta between those four firms and Berkshire Hathaway. And third, Microsoft, like Amazon before it, is creeping up nicely on Alphabet/Google.

That last bit was helped along by Morgan Stanley, which this week predicted that the software giant would hit a $1 trillion market cap within a year. Microsoft’s stock price—and market cap—jumped accordingly.

Granted, Apple and Amazon will almost certainly get there first: The $1 trillion market cap milestone is eagerly awaited in financial circles, and the betting on which firm will get their first has shifted in recent weeks thanks to Apple’s softer-than-expected iPhone X launch. But it is now possible that Microsoft will get there ahead of Alphabet/Google.

Further helping matters is that Facebook, the only other tech firm in the top ten from a market cap perspective, is nose-diving thanks to recent privacy concerns. The company’s stock has fallen over $30 in the past few months and its market cap has likewise fallen, to $464.97 billion.

Whatever the reason, Microsoft’s moment in the sun is both deserved and overdue.

Despite being much bigger than most Silicon Valley firms, Microsoft is rarely afforded much attention by Wall Street, or by business reporters for that matter. That Microsoft has several solid businesses seems not to matter, either. So the Morgan Stanley note is a welcome acknowledgment that Microsoft has a great future ahead of it.

As to the “why” of Microsoft’s path to a $1 trillion valuation, it shouldn’t surprise anyone: It’s all about the cloud, Morgan Stanley says.

“Strong positioning for ramping public cloud adoption, large distribution channels and installed customer base, and improving margins support a path to … a $1 trillion market cap for MSFT,” Morgan Stanley analyst Keith Weiss wrote in a note to the firm’s clients on Monday.

 

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