For nearly 50 years, Microsoft was considered a tech giant, but never had the cool and trendy corporate image like Apple, Google, Meta Platforms or even Amazon.
The software giant, founded in 1975 by Bill Gates and Paul Allen, has nevertheless made cool acquisitions like LinkedIn, or entered hype markets like video games with the Xbox console. But the perception surrounding the Redmond, Washington-based company remained that of a boring juggernaut.
But this year, Microsoft's image has changed thanks to the artificial intelligence revolution, which CEO Satya Nadella has called a "paradigm" shift. The developer of Word, Excel and other software has invested billions of dollars in OpenAI, one of the startups with DeepMind (Alphabet's Google), which plays the leading role in the public breakthrough of AI.
Microsoft Becomes Cool
OpenAI has notably developed ChatGPT, the conversational chatbot, which has not only disrupted the internet search industry but, above all, showed the public that AI had made great strides and that we are now approaching the moment when technology can perform tasks better and faster than humans.Microsoft Becomes Cool
Microsoft (MSFT) immediately incorporated various ChatGPT features in its Bing search engine, to challenge Alphabet's Google's global leadership in internet search. While Google reacted by launching Bard, the rival of ChatGPT, Microsoft won in public opinion the image of the group which is ahead in AI, especially since the company very quickly rolled out a series of tools and AI services for consumers and businesses.
This opportunistic strategy has changed the group's image: Microsoft is now considered a trendy, cool and innovative company. This can also be seen in the company's market value.
Microsoft is currently the second largest company in the world by market capitalization, with a market value of $2.487 trillion according to Companiesmarketcap.com. Apple (AAPL), the largest company in the world, has a market value of $2.957 trillion. Less than $500 billion separate the two companies.
Even though Apple has occupied the first place for several months, Microsoft has the wind in its sails and could dethrone the group led by Tim Cook. Its leaders are also very ambitious. Nadella has indeed established a lofty goal known only internally until now. It is rare to see Microsoft give long-term financial objectives.
$500 Billion in Revenue
Last year, the Chief Executive Officer informed management and board members that Microsoft was targeting annual revenue of $500 billion by fiscal year 2030. This goal is very aggressive as it means an increase of $37.7 billion on average per fiscal year from 2022 to 2030.
In the fiscal year ending June 30, 2022, the software and cloud giant had generated $198.27 billion in revenue. It needs to generate almost $236 billion of revenue in fiscal year 2023 to be on track to deliver the goal.
Fiscal year 2023 will close in a few days. Over the first three quarters, cumulative revenues amount to $155.72 billion, which means it needs an additional $80.26 billion for the current quarter.
The company revenue forecasts, however, for the fourth quarter of the fiscal year ending June 30, are between $54.85 billion and $55.85 billion. This suggests that Microsoft will be short by some $30 billion for fiscal year 2023.
The secret and aggressive objective, which was contained in an internal memo, was revealed on Jun. 26, during the hearings before a federal court in the dispute between the company and the Federal Trade Commission (FTC). The powerful regulator wants the court to temporarily prevent the acquisition of video game publisher Activision Blizzard by Microsoft, while it rules on the transaction.
The goal will be achieved by "implementing an evolving strategy that is growth-oriented and consistent with our enduring mission and culture," Nadella writes in the 15-page memo issued on June 7, 2022.
CNBC was first to report about the internal memo.
Cloud
The document also highlights the various factors contributing to Microsoft's growth. The boss takes the opportunity to make a distinction between the different activities. He talks about Microsoft Plus, which includes consumer products and services. He also evokes Microsoft Cloud, which mainly targets companies and organizations.
From both divisions, it appears that Cloud is driving Microsoft's growth with products like Azure, Microsoft 365, and LinkedIn. Azure is indeed bridging the gap in the cloud with Amazon Web Services (AWS) (AMZN) and is holding Google Cloud Platform (GCP) (GOOGL) at bay. The division offers cloud infrastructure, software and other solutions to businesses and organizations.
"Our priority is to maintain growth above the market rate to extend our lead over GCP [Google Cloud Platform] and close the gap with AWS," Nadella wrote.
The Redmond group has also recently seen important revenue in cybersecurity, which should be another driver of growth in the future.
To conclude, Nadella promises shareholders a juicy remuneration in the form of dividends and share buybacks.
"We believe this ambition and approach will help us deliver in excess of 10% annual returns to our shareholders over that timeframe," he said.
