Microsoft Stock Analysis: MSFT Headed in Prosperous Direction

This article was written by Jason Schwartz, a Financial Analyst at I Know First

Microsoft Stock Analysis 

“When I walk the hallways of Microsoft and talk with our talented people, the sense of purpose and urgency in realizing our mission through world class innovation is unmistakable.” Satya Nadella


  • 500 million devices are now running Windows 10
  • Advancements made to Microsoft’s intelligent cloud.
  • Using artificial intelligence to prevent workplace incidents
  • Microsoft Purchases Cyber Security Startup
  • Bullish I Know First Forecast for MSFT

Microsoft Stock Analysis

In May, the Washington State Convention Center in Seattle hosted Microsoft Build 2017, the company’s annual developer conference. The conference is aimed at the software, services, and hardware developer community. Microsoft Build is one of the most important shows of the year for Microsoft. More recently, Microsoft has confirmed that is had purchased Hexadite, Israeli security.

Microsoft’s New Strategic Vision

The company shared that more than 500 million devices are now running Windows 10. Meaning that Microsoft is halfway towards the goal of 1 billion devices by 2018 that it set for itself back at Microsoft Build 2015. However, the company later recognized that achieving the preceding goal by 2018 is simply not feasible, primarily because of the company’s decision to discontinue production of the Windows Phone. Microsoft simply could not compete in a such a crowded space. Instead, Microsoft is hoping to make Windows 10 an ideal companion for a mobile device. In other words, rather than focus on the device market, Microsoft has now opted to instead focus their attention on what’s going on inside the devices.

Advancements to Microsoft’s Intelligent Cloud

The conference was largely centered around advancements made to Microsoft’s intelligent cloud.

The three fundamental characteristics of the intelligent cloud are that it is multi-device, incorporates artificial intelligence, and is serverless. The primary goal of the intelligent cloud is for Windows 10 users to be more productive. Microsoft believes that the user experience should span all devices. Microsoft announced that Windows 10 users will now be able to copy and paste at any time. This is made possible by an universal clipboard that will enable users to copy and paste text across platforms and devices implemented in Microsoft Office applications first, before moving to other applications. Plus, all your files and activities sync across platforms from your Microsoft ID.

Cortana, a personal digital assistant, will now be available on all devices.  Also, Microsoft announced the launch of new tools that will enable users to add their own new skills to Cortana, alongside its built-in actions. By incorporating artificial intelligence, Microsoft hopes that Cortana will be able to better compete with Amazon Alexa.

Using AI to Prevent Workplace Incidents

Executives at Microsoft believe that artificial intelligence can even be used to improve workplace safety. It is Microsoft’s hope that artificial intelligence could one day save lives by predicting workplace accidents. In addition to alerting user to these possibilities. This is all made possible by using the Azure stack, Azure IoT Edge, Microsoft Cognitive Services, and speciality cameras. It works by deploying both people and object recognition models. It is capable of recognizing the person in real time as well as equipment. In order to keep employees safe, it allows for new policies to be adapted.

Microsoft Purchases Cyber Security Startup

Last week, Microsoft purchased Hexadite for $100M. Hexadite is an Israeli startup that uses Artificial Intelligence (AI) to identify and protect against cyber attacks. Hexadite’s headquarters are located in Boston and their research and development center is located in Israel. By automating responses to cyber attacks, Hexadite is able to both increase productivity and reduce costs for businesses. Microsoft already has their own existing security platform. However, Microsoft remains committed to becoming an industry leader in cyber security. Microsoft hopes to accomplish this goal by infusing new innovation areas such as AI and machine learning into their own security platform. The focus of Hexadite will now be on developing security solutions for commercial Windows 10 customers. Hexadite is the fourth Israeli cyber security that Microsoft has now acquired.

Financial Ratios

Both the gross margin and debt/equity ratio are particularly encouraging for all those who own stock in Microsoft.  

Because of the pricing power that accompanies their products, Microsoft has been able to achieve relatively high gross margins in the past. The gross margin is representative of the percent of total sales that the company retain after taking into consideration the cost of goods of sold. In 2016, Microsoft was able to achieve a gross margin of 61.6 percent. Meaning that Microsoft will retain nearly 62 cents from each dollar of revenue generated. It is common for technology companies such as Microsoft to achieve a high gross margin. However, Microsoft has been able to distinguish itself from its competitors, including IBM and Apple. In 2016, IBM has a gross margin of 47.9 percent and Apple had a gross margin of 39.1 percent. Having a noticeably higher gross margin than both Apple and IBM, gives Microsoft a distinctive advantage over both of these competitors. Having a high gross margin allows Microsoft to spend considerably more on research and development (R&D) than other tech companies on a comparable sales basis. More spending on R&D will allow Microsoft to further refine its offerings.

Debt/Equity Ratio is a debt ratio used to measure a company’s financial leverage. It is calculated by dividing a company’s total liabilities by its shareholders’ equity. The ratio shows how much debt a company is using to finance its assets relative to the value represented in shareholder’s equity. In case of an unfavorable business climate, the use of debt can easily become problematic. Microsoft has avoided accumulating debt compared to other high-tech companies. Microsoft accomplished this by managing to remain profitable and accumulating a considerable amount of cash. Thus, Microsoft is not facing risk in capital. Additionally, this has enabled Microsoft to be able to pay dividends to shareholders every year since 2003.


In 2014, I Know First predicted that Satya Nadella at the helm would be a good thing for Microsoft. Nadella’s vision for the company was in stark contrast with that of Steve Ballmer. It is now evident that Nadella has taken Microsoft into the right direction. Microsoft’s revamped strategic vision paired with advancements to its intelligent cloud should lead to sustained growth for the stock. In addition, Microsoft announced plans on bringing the iTunes app to the Windows Store, which excited many. The future of mixed reality, a mesh of virtual and augmented reality, was also discussed. Mixed reality could be a very lucrative venture for Microsoft in the future. Microsoft Build 2017 was undoubtedly a success. So much so that Microsoft announced the Microsoft Build Tour 2017, featuring eight international stops. Furthermore, the purchase of Hexadite only reaffirms Microsoft as a leader in cyber security. Lastly, investors should find the gross margin and the debt/equity ratio to be encouraging. Microsoft stock has increased dramatically in the past year, a share of Microsoft now cost $70.65, up over $20 from last year. There is sufficient reason to believe that this trend will continue into the future. Microsoft stock almost doubled since this bullish forecast and is currently near its all time high but we believe that there is still room for growth.

Past I Know First Forecast Successes With MSFT

In such as the one dated on August, 17, 2016, the algorithm accurately forecast a signal for Microsoft. Over a twelve months time span, the stock rose impressively by 21.87%.

I Know First Algorithm Bullish Forecast For MSFT

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm, allowing the user to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above in order to fill confident about/trust the signal.