Microsoft (MSFT) is an enterprise software king that's continued evolving with the times. Undoubtedly, the second-largest company on the planet has had to pivot multiple times, entering new markets as technological trends emerge.
Whether we're talking about a big move into the cloud with Azure, an area where Microsoft is a dominant force, or Xbox, the old-time firm is always a step ahead of the pack. Azure and Xbox went from intriguing investments to massive players in their respective industries, all thanks to steady investments over time. I am bullish on MSFT. (See Analysts' Top Stocks on TipRanks)
Microsoft's Growth Advantage: Management Knows Where the Puck Is Headed Next
Undoubtedly, Microsoft's sound investments in new growth markets have helped it continue to grow at an impressive rate as a behemoth, a trend that's likely to continue for many years, if not decades to come.
Diversifying away from Windows and Office towards cloud computing and gaming has paid off big time. With Meta Platforms (FB) shining a bright light on the future of the metaverse, with an ambitious $10 billion investment plan, there are reasons to believe that the metaverse could evolve to become the next big thing in the tech space.
Like cloud computing, almost every big-league tech giant is going to want a piece. Given Microsoft's phenomenal gaming foundation with Xbox and its dominance with popular workplace tools like Teams and Office, I'm inclined to give Microsoft the edge over the likes of Meta Platforms as users around the world begin to embrace virtual worlds over the coming years.
If anything, I think Microsoft will be one of the top metaverse pioneers, given its software offerings will be tough to stack up against, whether in this realm or in the metaverse. This is the reason I remain bullish on Microsoft stock and why I think it's one of the best all-around stocks to own for those bullish on the rise of the metaverse through the mid-to-late 2020s.
Microsoft: Ready to Adapt to Keep Its Growth Alive
Indeed, Meta Platforms is likely to be viewed as the go-to way to play the metaverse theme, mostly because of the name change and the company's new ambitions.
Still, Meta's Oculus and its line of VR (Virtual Reality) headsets, I believe, don't seem as ready for prime time just yet. Without a smash hit on the software front, the transition into the metaverse may not be as smooth as it would be for the likes of Microsoft.
Microsoft's Xbox is a leader in the gaming world. Undoubtedly, gaming is a red-hot growth market and one of the biggest lures into the metaverse for most casual consumers. The second-largest metaverse lure may be digital workplace environments where employees can remotely connect into digital office environments from the comfort of their own homes with avatars and the feeling of presence.
Microsoft Teams was a remarkable sensation through the past two years of COVID-induced workplace disruptions. The workplace collaboration tool could translate well once the metaverse is ready for prime time. Indeed, Mesh for Microsoft Teams, a metaverse-enabled offering, shows tremendous promise.
Although Meta Platforms wants people to work and play in its own version of the metaverse, I think it'll be tough to outdo Microsoft on the software front. On the hardware front (AR and VR headsets), Apple (AAPL) could have a powerful product up its sleeves for late 2022.
It's estimated that nearly 1.9 million Oculus Quest 2 headsets were sold as of the end of Q1 2021. Indeed, pandemic-induced lockdowns were a likely boost to sales. With Apple poised to pull the curtain on their own headset in a year or two, Meta is due to see rivals swoop in from all sides.
Wall Street's Take
Turning to Wall Street, MSFT stock boasts a Strong Buy consensus rating. Out of 24 analyst ratings, there are 23 Buys and one Hold rating assigned in the past three months.
The average Microsoft price target is $368.23, implying 13.4% upside potential. Analyst price targets range from a low of $320.00 per share to a high of $407.00 per share.
The Bottom Line on Microsoft Stock and the Metaverse
Meta may have the go-to social hang-out places in the metaverse. However, I think Microsoft or perhaps Salesforce (CRM) are likeliest to have the most popular digital office environments of the metaverse, given how well their current slate of workplace products will translate once the time comes. As for gaming, it'll be tough to top Microsoft, given its Xbox foundation has been built up over the last two decades.
So, between Meta Platforms and Microsoft, I think Microsoft is the preferred metaverse stock at current valuations. Although I'm not against buying shares of both companies at this juncture, given the metaverse can have multiple winners.
Disclosure: Joey Frenette owned shares of Apple and Salesforce at the time of publication.
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