Microsoft Stock Forecast: New Leadership, New Direction

The article was written by Ave New, a Financial Analyst at I Know First. He graduated from the Royal Melbourne Institute of Technology with a Bachelor of Business, Majoring in Marketing. 

Microsoft Stock Forecast

“I buy more books than I can finish. I sign up for more online courses than I can complete” Satya Nadella.


  • CEO Satya Nadella Appointed
  • Microsoft’s New Direction
  • Financial Outlook
  • I Know First Bullish Forecast for MSFT


What comes to mind when you think of Microsoft (MSFT)? For me, it’s Windows 95. Twenty-two years later and that’s still at the forefront of my association. The question begs, is that indicative of me or the company? For over a decade, Microsoft has lost its ‘powerhouse’ status. With rivals such as Apple (AAPL), IBM (IBM), Google (GOOGL) and even Facebook (FB), Microsoft has struggled to be innovative and remain relevant.


Microsoft Stock Forecast


In February 2014, Co-founder Bill Gates stepped down as chairman of the board of directors. This event coincided with the appointment of Microsoft’s new chief executive. There was mounting concern from investors that as long as Gates occupied the role of chairman, no chief executive would have autonomy. It was time for change, to adopt new strategies and to create a new culture, a sustainable one.

CEO Satya Nadella

Upon appointment, Nadella sent out an email to all Microsoft Personnel. The email (pictured below), personifies Nadella, “If you are not learning new things, you stop doing great and useful things.”

Nadella was appointed for his leadership, business vision and ability to bring people together. “I want every one of us to find more meaning at work.” This, a stark contrast to previous leadership, company ethos and culture. Before Nadella took over, everything at Microsoft was windows-centric. Employees were instilled with a “fear factor,” afraid to be wrong or sound ignorant.  Now, all that has changed. At the heart of operations is ‘Azure,’ a growing collection of integrated cloud services that developers and IT professionals use to build, deploy, and manage applications through Microsoft’s global network of data centers.

New Direction

Let’s look at some of the innovations, initiatives and developments that reek of Nadella.


  • The free release of Microsoft office for Apple iPad, iPhone and Android devices. In a surprise move, Apple partnered up with Dropbox, to integrate into Office. Now users of Office, no matter the device, can access their files, if it is stored on Dropbox storage. Dropbox users can directly link their account with Word, Excel and PowerPoint iPad apps. Since the initial initiative, there is a newly introduced ‘co-authoring’ function in Office Online. Users can collaborate on Office docs in their Dropbox with others in real time. No more back and forth. Users can edit the same Office file at the same time – super convenient.


  • The acquisition of Mojang, creators of “Minecraft” for $2.5 billion. The question implores, why? Aside from the obvious tax benefits, the answer is simple. Mojang provides an asset and community for Microsoft to tap into. Strategically, it makes sense as Microsoft want to drive users towards its developing mobile hardware. In turn, creating a pathway to leverage and cross-sell its other software. Additionally, there’s always Xbox. The Minecraft name more than carries its weight within the gaming community.


  • The introduction of the company’s first laptop, the Microsoft Surface Book. The Surface Book is a 2-in-1 personal computer (PC). Distinguishing the Surface Book from Surface Pro devices. The Surface Book has a full-sized, detachable keyboard which contains a second battery and several ports, with an optional discrete graphics card which is used when the screen part is docked to it.


  • The acquisition of LinkedIn for $26.2 billion, its largest single deal ever. With Microsoft’s long-term strategy of building specialized business software, the acquisition of LinkedIn fits the bill. Nadella is now under pressure to justify the pricey acquisition. R Wang, founder of analyst firm Constellation Research, notes that “Microsoft is putting together the contextual business data people need to be more efficient and build better relationships.” (Business Insider) Nadella is keen to continue offering pivotal LinkedIn data to other companies, including competitors.

Financial Outlook

As the new CEO Satya Nadella brought many changes to Microsoft, his leadership has made a positive impact towards its shareholders. Investors are waiting anxiously for Microsoft’s upcoming annual report after June 2017. Since June 2016, shareholders watched the stock increase over 27%. In fact, Microsoft exceeded analyst’s expectations of EPS for the past 4 quarters. EPS growth along with increase in net income demonstrate Microsoft’s appeal towards investors. Long-term EPS growth in the past ten years has grown by 38.3%. Given its current rate, analysts from Zacks Investment Research predict growth rate for the next 5 years to grow between 8 to 16%. If we were to compare the annual net income posting from 2015 to 2016, we can see a notable increase from $12,193 million to $16,798 million. That is an increase of approximately 38%.

Previous I Know First Success with MSFT

On February 11th, 2014, I Know First analyst foresaw Nadella’s encouraging new direction for Microsoft and the manner in which Nadella would lead. In addition, part of the reason to contribute Microsoft’s rise was its investment in enterprise IT and gaining market shares from its competitors in commercial cloud services. Year over year, commercial cloud services grew more than 100% at the time of the article’s writing. As three years have passed by with Microsoft on the rise, the bullish forecast was accurate in its prediction for Microsoft.


When Nadella took the reins in February ’14, Microsoft (MSFT) was trading at a measly $36 per share. Since then, the stock has steadily climbed to a healthy $67.77 per share. The current stock price reflects the initiatives Nadella has introduced since his appointment. With the shift in focus away from Windows towards its ‘Azure’ and being more integration friendly, we maintain a bullish forecast of the stock.


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 0 in order to fill confident about/trust the signal.


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