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Survivors and Thrivers – Critical Investment Themes for 2021
December 15, 2020
The work-from-anywhere trend is here to stay, to the benefit of big tech. Picture: Helena Lopes/Unsplash
Load Up On Tech Stock And Enjoy The Ride Of Your Life
June 28, 2021

“Microsoft – Mr Softie – results are out and they just blew past all predictions!” – William Meyer

I have always liked Microsoft. It’s a great investment.

On January 26, after the market close, Microsoft reported earnings for the fourth quarter ended December 31 2020 and they were superb! Revenue increased by 17% to $43.1 billion – more than $40 billion for the first time. Operating income was $17.9 billion and increased 29%. Net income was $15.5 billion, an increase of 33%. And, most importantly, diluted earnings per share were a most impressive $2.03 and increased 34%.

Investors should note very carefully the following comment made at the results presentation by Satya Nadella, chief executive officer of Microsoft: “What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry. Building their own digital capability is the new currency driving every organisation’s resilience and growth. Microsoft is powering this shift with the world’s largest and most comprehensive cloud platform.”

For me, there are some key words in these opening statements.

Critical Investment Themes for 2021 – Survivors and Thrivers

First, Nadella speaks of a dawn of a second wave of digital transformation. The implication here is that this is just the beginning of this super-trend. Second, we see that transformation is critical for survival. And last, he speaks of Microsoft having the largest and most comprehensive cloud platform – and this I didn’t know.

Until now, I thought Amazon’s AWS (Amazon Web Services) was the largest in the cloud business with a 30% share of the cloud market, with Microsoft a distant second. I do think Nadella is exaggerating his position, but it does point to Microsoft’s serious ambition in this market.

Drilling down further into the detail we can see what happens when the PC market experiences its first big growth in 10 years, with 300 million devices shipped during 2020. The Covid-19 pandemic has fundamentally changed the way people work and learn, and most have turned to laptops to continue remotely.

Dynamic Capital Allocation in a Covid-19 World

This is also the first quarter of sales of Microsoft’s Xbox Series X and S consoles. Hardware sales grew by 86%, thanks to the next-gen consoles. Gaming has been incredibly popular throughout 2020 and many have clearly turned to Xbox Game Pass and services such as X Cloud during the pandemic. This has pushed gaming revenue up 51% and it has reached $5 billion for the first quarter ever. Unfortunately, supply is still constrained.

Virtu Financial Inc’s CEO, Doug Cifu, has the same view as Nadella when it comes to new world order, but puts it even more dramatically: “Face to face work will not return in the financial industry in a meaningful way until after 2022. When there is a broader return to offices, workers will be spread across countries and not confined to regions and offices. This is a forever thing. We ain’t coming back!”

Investors need to urgently position their portfolios accordingly.


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please do not hesitate to contact Fenestra on 021 689 7855 for a free review of your portfolio.