Robert Frazier Was Right, Microsoft Is Ahead Of Schedule In Cloud Revenue – Forbes
After a surprising earnings report, Microsoft’s stock price is rising to new heights. Not many stocks will rise 6-8% in a day, especially a company with a market cap in the hundreds of billions, but this is what Robert Frazier told us he expected to see from Microsoft in July. It now appears Microsoft is ahead of schedule in growing their cloud computing business and the stock is responding as Robert expected.
Ken Kam: In July, you recommended buying Microsoft. Now the stock price has hit new record highs the last month, is there still room for growth in this old blue chip stock?
Robert Frazier: I think that often as investors we hesitate to jump in late to a good thing, fearing that the growth in stock price is behind us. Many times that is true in a stock bubble built on speculation.
With Microsoft I think we are looking at early growth for a company that is building dominance in a growing newer industry (cloud computing). Microsoft has invested in some of the best technology, has opened their platform to linux configurations, and is ahead of schedule in building their cloud computing business to $20B per year.
Many managers like myself who are long on Microsoft will be forced to sell stock because it has become so valuable, just to re-balance their portfolio, when we would rather be buying.
Kam: Is there anything surprising in these reports that we should look at?
Frazier: 120 million corporate Office 365 users. That is a huge number for a business services company, and it continues to grow with their enterprise level administrative tools and cloud integration. The surprising thing about the future is that there are hundreds of millions more that will be purchasing corporate cloud services in the coming years and now Microsoft is the early leader.
Kam: Do you think that Microsoft is likely to continue to grow, even as an industry leader? Many are fearing that the entire market has long been overdue for a correction after an 8 year rally.
Frazier: I was a Trump-bear guy. I thought going into 2017 that with uncertainty in the markets and broad political risk, that 2017 was going to be a mixed year for the markets.
I was wrong.
Trump didn’t matter as much as many imagined, whether the bulls hoping for deregulation and tax reform, or the bears worried about instability.
I still believe that there will be a 10-15% correction in the market over the next 18 months. With higher interest rates and lower international investment inflows, we are due, even with the market growing at 3% per year.
That being said, I think that Microsoft will fair better than most with their positioning in the market, whether in a down market or a bull market like we have seen in 2017. My recommendation is, buy as much MSFT as you can stomach.
My Take: Robert started his Medium Term Value Fund at Marketocracy in August of 2005. Over the past 11+ years, his fund averaged 11.74% which compares well to the S&P 500’s 8.51% for the same period. For the last 3, 5, and 10 years, his fund would rank in the top quartile of U.S. equity mutual fund managers. Before taking anyone’s advice, you should always check their track record. Here is Robert’s.