Microsoft (NASDAQ: MSFT) has gone from the doldrums of the tech world to being a dominant force once again. Although the company struggled in the early 2000s due to missed opportunities in the mobile sector, the arrival of Satya Nadella as CEO nearly a decade ago marked a turning point in its trajectory.
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Nadella’s leadership transformed Microsoft’s strategic focus. He ended the rivalry with Apple, allowing Microsoft Office products to be used on Apple devices. Additionally, he made substantial investments in Microsoft Azure, the company’s cloud infrastructure business, which has become its primary profit driver. Azure has rapidly grown to become the second-largest cloud infrastructure business, outpacing its major competitor, Amazon Web Services.
Nadella also engineered crucial acquisitions such as LinkedIn, GitHub, and Activision Blizzard, diversifying Microsoft’s portfolio and bolstering its position in areas like advertising and open-source code development. However, his most significant achievement may be the partnership he cultivated with OpenAI, in which Microsoft now holds nearly 50% ownership. This collaboration has propelled Microsoft to the forefront of generative artificial intelligence (AI), with OpenAI’s technology integrated into various products, including Azure, the Office suite, and Bing search.
This strategic evolution under Nadella’s guidance has translated into exceptional stock performance, with Microsoft’s value rising by 934% since he assumed the role of CEO, significantly outperforming the S&P 500 as depicted in the chart below.
If an individual had invested $10,000 in Microsoft at the onset of Nadella’s tenure, they would now possess $123,000 with dividends reinvested or $103,400 without dividends. This amounts to a compound annual return of 29% with dividends reinvested or 27% without reinvestment, a figure almost triple the historical average of the S&P 500. This remarkable performance stands in stark contrast to the meager 34% appreciation over the previous decade.
Navigating the Future with Microsoft
Nadella’s stewardship of Microsoft exemplifies the influence a CEO can exert in revitalizing a company. With ultimate responsibility for corporate strategy and capital allocation, a CEO’s impact, whether positive or negative, cannot be overstated.
As the AI revolution gains momentum, leadership becomes even more pivotal in the tech industry. The choices and investments made by CEOs like Satya Nadella hold sway over potentially billions of profits in the long run, particularly in competitive arenas such as generative AI.
Nadella has not only enhanced Microsoft’s resilience significantly compared to a decade ago but also positioned the company for sustained growth by capitalizing on the expansion of its Azure cloud infrastructure business, integrating its Office suite with Apple products, and executing astute acquisitions like LinkedIn and GitHub. This diversification also confers an edge over other tech giants, allowing Microsoft to deploy new generative AI across a broad spectrum of products.
Is Microsoft Stock a Wise Investment?
In 2023, Microsoft stock surged by over 50%, resulting in a relatively hefty price-to-earnings ratio of 36. Despite the seemingly rich valuation, Microsoft delivered an impressive performance and fortified its competitive advantages by embedding its novel AI Copilot in an array of products, including its office productivity software.
The demand for these products is anticipated to escalate in 2024, underpinning investor confidence in Nadella’s leadership. This sentiment is further upheld by Microsoft’s continued exploitation of its partnership with OpenAI, providing the company with a distinct AI edge.
Given these circumstances, albeit the stock’s elevated price, Microsoft still presents an attractive investment opportunity in 2024.
Should you invest $1,000 in Microsoft right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Apple, and Microsoft. The Motley Fool has a disclosure policy.