Microsoft Corp. (Nasdaq: MSFT) CEO Satya Nadella has already made his company a force to be reckoned with, setting the once-stagnant tech giant back on a course toward innovation and big returns.
His efforts have helped push MSFT stock up 27% in just 20 months.
But when he took the stage at a New York City press event on Oct. 6, Nadella started to sound a bit like another, more famous tech executive.
That was the instant Nadella unveiled a series of new hardware products coming from a company that is renowned as one of the biggest software firms on the planet.
Of course, Nadella was taking a page out of Steve Jobs’ winning playbook. Apple Inc. (Nasdaq: AAPL) has in fact become more than just a computing company – it’s a true tech “ecosystem.”
That’s basically the vision Jobs laid out for Apple, one heartily endorsed by his successor, Tim Cook.
The ecosystem approach means you’ll be able to rely on Microsoft for all your computing hardware needs – a fitness band/watch, a smartphone, a tablet, a laptop, even a virtual reality (VR) headset.
This is some of the most exciting and potentially profitable news we’ve ever had from Microsoft. Let me show you what’s just around the corner – and how it will pack on billions in value for investors…
Ecosystem Essential No. 1: The New Must-Have Laptop
The new Surface Book laptop is getting rave reviews, even from hardcore Apple users.
Think of it as a MacBook Air but with a tablet included. The screen folds over to turn the device into a tablet. It also comes with a stylus that magnetically attaches to the left side of the screen.
The Surface Book enters the only PC category still growing – laptops. Tech research firm International Data Corporation (IDC) says laptop sales should come in around 164 million units in 2015. IDC projects average annual growth of about 1.2% for the next five years.
Priced at $1,500, Microsoft’s laptop is clearly aimed at the top end of the market. But initial reviews are enthusiastic regarding quality, build, design, and style.
With the addition of the Surface Book, Microsoft now has a range of quality machines running the best version of Windows the company has made in several years.
Ecosystem Essential No. 2: The Truly Competitive Tablet
Microsoft also unveiled its newest Surface Pro 4 tablet, hardware that Microsoft has struggled with in the past.
You see, while Apple pioneered the tablet in 2010, Microsoft wasn’t far behind, launching in 2012. The problem was, Microsoft tablets weren’t very well thought out and were running Windows 8 – universally derided as a lousy operating system.
The blunder allowed Alphabet Inc.’s (Nasdaq: GOOG, GOOGL) (then known as Google) Android to capitalize on the non-Apple tablet market.
Now IDC says tablets running Android account for 67% of sales, with Apple in second place at 25%. But, critically, the research forecasts Microsoft will double its market share from the current 7% by 2019.
Because this time around, Microsoft has made a tablet that can compete with the iPad Pro in all areas, including price and performance.
For the fiscal 2015 fourth quarter ended June 30, tablet revenue came in at $888 million. That’s an increase of a stunning 117%.
Ecosystem Essential No. 3: Microsoft’s Own Smartphone
Also in early October, Microsoft unveiled two new Lumia smartphone models – the 950 and the 950XL.
It’s a bold move. Last July, Microsoft laid off another 7,800 workers, mostly those who worked on phones, and took a $7.5 billion “impairment charge” for its Nokia handset division.
But Nadella has made success in the smartphone segment a management imperative. He’s already put his imprint on this unit, making the phones less Nokia and more Microsoft. The new “Continuum” feature turns the smartphone into a PC when hooked up to an external monitor.
At this point, Apple and Android devices account for about 95% of the smartphone market. So there is plenty of opportunity for Microsoft to grow from its recent global market share of less than 3%.
And since units all run the Windows Phone OS, any improvement here helps the firm extend its tech ecosystem.
Ecosystem Essential No. 4: Technology You Can Wear
Microsoft is even ramping up its game in the newest and hottest trend in tech – wearables.
The company classifies its updated Band 2 as a fitness device. They say it’s not a true “smart watch,” but that may be unwarranted humility…
The Band 2 has email and text features and runs a host of interesting apps. For instance, wearers can access alerts from Uber, RunKeeper, Twitter, Facebook, Starbucks, and more – as well as the entire Microsoft Health platform.
Respected tech website Techradar.com had this to say in its initial review: “A far cry from the uncomfortable shackle that was the original, the Microsoft Band 2 could well be the fitness tracker to beat.”
The watch drops Oct. 30 and sports new sensors, a sleeker design, a hardened curved screen, and longer battery life. It will retail for $249.
But Band 2 is far from the most exciting wearable Microsoft has in the pipeline.
The company is garnering serious buzz and building consumer anticipation for an impending entry into the new market for virtual and augmented reality headsets.
Called Project HoloLens, the device contains an onboard camera as well as a computer hooked up to 18 sensors that transmit a tidal wave of data every second.
Running on Windows 10, Project HoloLens has more computing power than a laptop. It operates without wires, and the headset responds to voice, gaze, and gestures.
Transparency Market Research says global VR gaming alone will grow by 39% a year through 2019. That’s going from a $466 million market in 2012 to a $5.8 billion industry in just four years.
Microsoft Is a Foundational Tech Holding
As these new products make clear, Nadella has a strong vision for transforming Microsoft into a broader, more cutting-edge tech firm.
This CEO is putting his stamp on every division and is working to improve shareholder value with a focused business strategy as the firm continues to buy back shares.
With a market cap of $374 billion, the stock trades at $46.85. It has 30% operating margins and a 14% return on stockholders’ equity.
Plus, its dividend pays a little more than 3% in a zero-interest-rate market. So, Microsoft is paying investors to be patient.
The stock is gaining traction in a volatile market. Since bottoming out during the summer sell-off on Aug. 25, it’s already gained nearly 16%.
And with Nadella looking like he really can create a Microsoft ecosystem, this may be only the beginning of a profit stream investors can expect from this new tech ecosystem play.
Satya Nadella is going all-out, and Microsoft stock is surging because of it. Michael has identified five more CEOs with the “right stuff” that are doing the exact same thing for their companies’ stock. And you can find all five in Michael’s new report. To access it immediately, and get all of his Strategic Tech Investor research, just click here.
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