Last week's second-quarter earnings report from Microsoft Corp. (Nasdaq: MSFT) disappointed Wall Street and plenty of other investors – and they punished the company by slashing MSFT stock by 10% in one day, on Jan. 27.
However, that just makes the Microsoft story – which I began two weeks ago – more interesting.
Investors overreacted to what was actually a pretty good earnings report – no surprise there. And Wall Streeters, who should know better, are missing a big part of the Microsoft story – this isn't the same complacent, one-trick Windows/Office-rooted enterprise it was not too long ago.
The tech giant has been quietly and steadily rebuilding, repositioning, and refocusing itself for success in a brand-new era through big investments – and rapidly increasing sales – in hot sectors like cloud computing.
To see why this is happening, we're going to take a look at how Microsoft exemplifies Rule No. 1 of my tech wealth-building system – "Great companies have great operations."
Thanks to its visionary new CEO, Microsoft is far from being a "weak" company – and MSFT stock is due for a pretty quick rebound.
Today I'll show you why that's true – and then I'll show you why we can expect even greater gains from there…
The New Guy at Microsoft (Nasdaq: MSFT)
As he completes his first year as CEO, Satya Nadella has shown he has the right leadership skills to run the world's largest software firm.
It's hard to imagine that almost exactly a year ago Wall Street was hoping that Microsoft's board would turn to an outsider to replace Steve Ballmer.
Under Ballmer, Microsoft missed several big shifts in the tech landscape. Most notably, the firm basically was a no-show in the hyper-growth worlds of mobile and cloud computing.
Put that into a deeper perspective. When Ballmer took over from Bill Gates in January 2000, there was no iPod, iPhone, or iPad from Apple Inc. (Nasdaq: AAPL).
Amazon.com Inc. (Nasdaq: AMZN) mostly sold books and had not yet become the nation's dominant provider of cloud computing services. And Netflix Inc. (Nasdaq: NFLX) was just getting started – as a DVD rental firm – nothing close to the king of streaming online video it is today.
As these new tech leaders rose to power and saw their stock prices climb, Microsoft was stuck in neutral – or worse.
In the 10 years before Nadella took the CEO reins, Microsoft's stock advanced just 33%. Compare that with a 56% return over the same period for the Standard & Poor's 500 Index – and a 93% gain in the tech-centric Nasdaq Composite Index.
No wonder many industry analysts clamored for new blood at the top – someone from outside the company. On Jan. 15, 2014, USA Today quoted IDC Analyst Al Hilwa as saying:
"There is an element of the selection process to do with perceptions. The company has to show that a new leadership is unconstrained in setting new directions. This is most convincingly done with an outsider."
While Microsoft didn't end up turning to an outsider, Nadella turned out to be the right executive at the right time.
About the Author
Michael A. Robinson is a 35-year Silicon Valley veteran and one of the top technology financial analysts working today. He regularly delivers winning trade recommendations to the Members of his monthly tech investing newsletter, Nova-X Report, and small-cap tech service, Radical Technology Profits. In the past two years alone, his subscribers have seen over 100 double- and triple-digit gains from his recommendations.
As a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs and high-profile industry insiders. In fact, he was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon. And he was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
In addition to being a regular guest and panelist on CNBC and Fox Business Network, Michael is also a Pulitzer Prize-nominated writer and reporter. His first book, "Overdrawn: The Bailout of American Savings" warned people about the coming financial collapse - years before "bailout" became a household word.
You can follow Michael's tech insight and product updates for free with his Strategic Tech Investor newsletter.