Microsoft Corp. (NASDAQ: MSFT) is up 11.8% in the last two weeks. Anyone holding shares got a nice pop.
But we’re seeing the early tremors of something much bigger ahead. Microsoft stock has a couple catalysts on the way that could push the stock to $400 by the end of the year.
We just watched Microsoft become a cloud computing champion with its popular Azure platform in the last two years. And the company just reported an increase of 50% in Azure sales for Q2 2021.
The company beat Amazon to acquiring the U.S. government’s JEDI contract for cloud computing in 2019.
Microsoft finished last year creating the Azure Government Top Secret Cloud for defense workers dealing with top-secret information. It’s a sign the company feels confident about its prospects in the legal proceedings.
Here’s what could send Microsoft up 40%, 50%, or higher in the next year.
No. 1: Microsoft Will Rule Video Games
Microsoft has long been known as one of the “Big 3” video game companies besides Nintendo and Sony Corp. (NYSE: SONY). The latest Xbox from Microsoft took 34% of the market, while the PlayStation 5 from Sony dominated with 65%.
That won’t last.
Along with potentially controlling the cloud gaming market with Azure, the company is laying further plans to expand its cloud gaming market share.
Microsoft recently entered talks with Discord Inc., sparking rumors that it might acquire the video game chat community for $10 billion or more.
Acquiring Discord would be a huge plus for Microsoft’s gaming arm, since the app would go hand-in-hand with a cloud gaming system, Xbox Game Pass. Right now, many gamers use Discord for its integration with PC gaming services like Steam and Twitch.
Not only that, but Discord serves 140 million users interested in more than just video games.
People can talk by video, voice, and text on the app.
Through the pandemic, people created Discord channels for work chats, tutorials, happy hours, and really anything that involves discussion.
Now, this is far from a done deal, as Discord has been talking to several buyers, and even considering an IPO instead. But if it does go through, consider it a major boost to Microsoft’s gaming exposure.
Plus, companies that once exclusively offered their games on special consoles, like Microsoft, are looking for inlets to the PC world, since gaming is moving toward the “cloud.” This will enable playability between Macs, PCs, and various mobile devices – games will be streamed, not limited by hardware.
Microsoft wants to find as many thriving user communities as it can to profit from an increasingly digitized commercial sphere. It attempted to buy TikTok before it went public last year, and Pinterest after that. But of all these communities, Discord may fit Microsoft like a glove, both for the video games and the social aspect.
Last year, Microsoft bought a company called ZeniMax Media for $7.5 billion. This is the company behind the Elder Scrolls and Doom game franchises. So, it’s no secret that Microsoft is hungry for growth in the gaming sector.
But that’s not the only catalyst fueling Microsoft stock higher.
You may know about Microsoft’s bid for the JEDI contract with the U.S. Department of Defense. That win is being disputed by Amazon.com Inc. (NASDAQ: AMZN) as we speak.
Well, Microsoft just won an entirely different contract worth twice as much…
No. 2: Microsoft Stock Will Pop on Its HoloLens Deal with the Military
Augmented reality might still seem like sci-fi to some. If you’re familiar with Google Glass or games like Pokemon Go, these are digital experience that project virtual items into your real-world environment.
While we’re yet to see a successful Google Glass headset, the U.S. Army sees potential value in Microsoft’s “HoloLens” technology. It’s ordered more than 120,000 headsets to be made for training purposes.
And the Army will pay Microsoft $21 billion to make that happen.
Shares popped 2% immediately after the announcement. They’re rising at this very moment. And they should continue to climb higher on the expectation of this 10-year revenue stream for Microsoft.
This deal proves Microsoft is more than a dot-com dinosaur. If anyone doubted it was capable of more than PCs, gaming consoles, and Internet Explorer, HoloLens changes that. The company can still research and develop with the best of them.
One HoloLens device comes to about $3,500. When soldiers put the goggles on, they see holograms on top of their physical surroundings. Those holograms respond to their physical movements and commands.
The HoloLens will be used for training. But it sets the foundation for a combat-oriented wearable.
The Army contracted Microsoft for $480 million in 2018 to use its Integrated Visual Augment System (IVAS). IVAS gives soldiers the ability to see holograms of maps and compasses in real time. That’s in addition to thermal imaging and other tools.
Powered by Azure, the system aims to keep soldiers safe by giving them better situational awareness in combat.
This represents another step in Microsoft’s defense work with the U.S. government.
Now, here’s the bottom line for Microsoft stock.
Microsoft Stock Price Prediction for 2021
The gaming industry is one of the most promising growth industries in the world. The defense industry is one of the most stable. If you’re looking for maximum exposure to both, don’t hesitate to buy more shares of Microsoft.
Microsoft stock has been a sure buy-and-hold for the last few years. But it’s about to continue its rally toward a nice jump for 2021.
This company is on the verge of dominating both cloud gaming and defense.
The cloud gaming industry will be worth more than $7 billion by 2027, according to Grand View Research. It was measured at just $470 million in 2021. That’s over 1,300% growth, of which Microsoft will get a sizable piece.
In addition, it’s likely cloud gaming will further close the gap between Microsoft and Sony.
If we go on Microsoft’s 34% console market share alone, that’s more than $2.3 billion revenue from its video game unit. The company’s revenue from cloud gaming will be even higher within the next decade.
If that weren’t enough, Microsoft just won over $30 billion in contracts with the military. The last defense spending bill just gave $695 billion to the Pentagon. With tech in the military – such as AR goggles – becoming increasingly important, this could be a huge new revenue stream.
Analysts are giving Microsoft a 21% growth target of $315 from today’s $259. But I’m pulling for the Microsoft stock to hit $400 before the end of the year.
— Mike Stenger
Source: Money Morning