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Here's Why Microsoft (MSFT) Is a Better Buy Than FAANGs

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Microsoft (MSFT - Free Report) catapulted to the position of the world’s most valuable publicly traded company for a brief stint. The company trumped iPhone-maker Apple (AAPL - Free Report) for the first time in eight years, per data from Bloomberg.

In August, Apple became the first U.S. company to hit the $1-trillion benchmark. However, since then it has lost 9.7% primarily due to rising concerns over iPhone demand. Moreover, increasing probability of tariff imposition by the Trump administration on all remaining Chinese imports, including iPhone, is concerning.

Meanwhile, Microsoft has remained relatively insulated from the recent stock market rout for tech stocks, particularly FAANGs. The group has collectively lost around $575 billion in market cap since the beginning of October. FAANG is the acronym for Facebook (FB - Free Report) , Apple, Amazon (AMZN - Free Report) , Netflix (NFLX - Free Report) and Alphabet division Google.

Notably, Microsoft has returned 29.6% year to date, trailing Netflix and Amazon’s respective gains of 47.2% and 43.3%.

Microsoft’s momentum is expected to continue on strong prospects of Azure, expanding enterprise business and LinkedIn. Let’s take a closer look at the key factors.

Azure Taking Over Market Share

Azure has turned out to be Microsoft’s cash cow. Per the latest Synergy Research data, cloud computing service has gained the maximum market share in the last four quarters, beating Amazon Web Services (AWS), Google Cloud and Alibaba (BABA - Free Report) .

In the last-reported quarter, Azure's revenues soared 76% at constant currency (cc) on a year-over-year basis. Expanding new capabilities with focus on existing workloads like security and new workloads such as Internet of Things (IoT) and Edge AI is helping Azure win new customers rapidly.

Moreover, Microsoft is gaining ground in government departments, intensifying competition against AWS, which recently rolled out its second isolated infrastructure region for government agencies and the organizations in highly regulated industries.

Enterprise Business Spreads Out

Enterprise business is expanding on solid adoption of Microsoft 365, Teams, Office 365 and Dynamics 365 solutions. Revenues at Productivity & Business Processes, which includes the Office and Dynamics CRM, have increased 18% at cc on a year-over-year basis to $9.77 billion in the last-reported quarter.

Microsoft is adding features that are making the solutions more enterprise oriented. Apart from strengthening cybersecurity features of Microsoft 365, the company has infused new AI-driven features, including automated slide design, Cortana reminders, enhanced search experiences and real-time meeting transcription, among others. These are expected to expand install base.

Moreover, Microsoft Teams is now used by roughly 329,000 organizations, including 87 of the Fortune 100. The company is adding automated translation support for meetings, shift scheduling for firstline workers, and new industry-specific offerings for healthcare and small businesses.

Further, the acquisitions of Semantic Machines, Bonsai, Lobe buyouts, GitHub, FSLogix and XOXCO are expected to strengthen Microsoft’s domain expertise.    

LinkedIn: A Surprise Package

LinkedIn is growing faster than anticipated. Revenues surged 33% from the year-ago quarter to $1.46 billion, while sessions were up 34%, reflecting acceleration in engagement.

The acquisition of Lynda.com helped the platform host a diverse set of courses. Further, LinkedIn recently announced plans to acquire a startup, Glint, which offers Employee Engagement, Team Effectiveness, Employee Lifecycle and Manager Effectiveness solutions.

Reportedly, LinkedIn is now testing a new feature called “Student Voices,” to boost engagement, particularly among college goers and recent graduates.

Microsoft a Solid Buy

Microsoft currently has a Growth Style Score of B and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Our research shows that stocks with a Growth Style Score of A or B when combined with a Zacks Rank #1 or 2 offer good investment opportunities.

Over the last 60 days, the Zacks Consensus Estimate for its fiscal 2019 earnings has increased 4% to $4.43, reflecting year-over-year growth of 14.2%.

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