Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
Shares of tech giant Microsoft (MSFT 2.89%) rose about 2% as of 12:06 p.m. ET on Monday amid several positive developments. The entire technology sector has been under pressure this year, and Microsoft — although holding up much better than most other software companies — is still down 26.3% for 2022.
Still, Microsoft remains a solid core holding for any tech portfolio, and two positive pieces of Monday news continued to back up that assertion.
First, Microsoft announced an interesting deal with the London Stock Exchange Group (LSE 2.97%), which not only signed up for a 10-year cloud deal with Microsoft, but also saw the Redmond giant take a 4% stake in the LSEG. The the stake will be purchased from the consortium of Blackstone and Thompson Reuters.
Under the deal, LSEG will migrate its technology infrastructure over to Microsoft’s Azure cloud and will spend a minimum of $2.8 billion over a 10-year period. However, it appears this is not just another cloud deal.
Going forward, the two companies will integrate LSEG’s Workspace data and analytics platform with Microsoft Teams and other Microsoft applications. The two companies will also work together to bring new next-generation data and analytics services to the financial services market. The new integrated platform will span cloud infrastructure, data integration, machine learning, and data governance.
In fact, LSEG will increase its capital spending through 2025, taking a small hit to margins, in order to build out this new infrastructure, according to the company. In addition, Scott Guthrie, Microsoft’s Executive Vice President, Cloud and AI Group, will be appointed to LSEG’s board of directors, pending regulatory approval. LSEG claims the new partnership is “expected to increase LSEG’s revenue growth meaningfully” over the coming years.
This high-profile deal is just another example of how the cloud continues to transform industries. Despite some slowing growth this year, it still remains one of the better long-term growth industries over the next decade.
Perhaps that’s why Microsoft was also flagged as one of the “Top of the Crop” stocks for 2023, according to sell-side analysts at Credit Suisse. The “Top of the Crop” designation entails the firm’s highest-conviction ideas going into the next year, and Credit Suisse’s earnings estimates are meaningfully higher than consensus. The analyst believes Microsoft can continue taking market share in the cloud infrastructure market and will continue growing high-margin Office 365 subscriptions.
Judging by today’s high-profile deal with the London Stock Exchange, it appears Credit Suisse’s prediction is off to a good start.
Microsoft is one of the best defensive blue chip stocks in the technology sector, with very high margins and free cash flow, and multiple attractive revenue and profit streams, including the all-important Azure cloud platform. Today’s LSEG announcement and endorsement from Credit Suisse just reinforce that stature.
Whenever Microsoft’s stock has pulled back more than 25% in the Satya Nadella era, it’s historically been a good time to add more shares of this long-term winner. It’s likely no different this time.
Billy Duberstein has positions in Blackstone and Microsoft. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Blackstone and Microsoft. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.
Market data powered by Xignite.
