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International Investing for South Africans
August 25, 2021

Sorry you missed the first one trillion-dollar company?
Here’s the first three trillion-dollar company!

Many investors missed the first one trillion-dollar companies, many missed the first companies to reach two trillion, and sadly most investors will undoubtedly miss the first company to reach three trillion dollars.

But not Fenestra and not its clients. We have been buying these shares even before there was a single one trillion-dollar company. Check the Fenestra website for articles going back two decades.

Let’s check out Microsoft. On Tuesday, the company reported earnings that crushed expectations. Cloud revenue rocketed 36% and according to Dan Ives, Wedbush Analyst, this will light a fire under the stock price. “I think this is just more fuel in the engine to drive this stock higher. It just shows that in this arms race, Microsoft continues to gain market share. I see this stock going over $400”.

For the quarter, Microsoft’s cloud services generated $20.7 billion in revenue. The company is second in terms of cloud market share behind Amazon, and ahead of Google and IBM.

A massive $13 surge on Wednesday in the Microsoft share price almost knocked Apple off its perch as the most valuable company in the world. Microsoft’s shares jumped 4.2% to close at a record $323.17. Fenestra started buying Microsoft shares when they were trading at $25 per share. Apple share price closed at $148.85. Fenestra started buying these shares when they were $12 per share. Fenestra also recommended Amazon shares when they were $185. Amazon closed at $3 392 on Wednesday.

Microsoft’s valuation is now $2.426 trillion, just 35 billion less Apple’s $2 461 trillion. Microsoft has certainly narrowed the gap as its share price is up 45% for the year compared to Apples 12 rise.

For Microsoft it’s all about the cloud. Already the cloud business segment is Microsoft’s largest and most important and, the exciting thing here is that it is still in the early stages of adoption by the company’s huge installed client base. Office365 transition is providing growth tailwinds and this will continue for several years to come and the increased move to remote work has added further momentum.

Ives doesn’t believe that a return to office work for employees will hurt Microsoft’s cloud business either. Microsoft isn’t just seeing growth in its cloud business. The PC business continues to do well. The new Windows 11 operating system was launched on the 5th October.

The PC and the gaming business have, however, been affected by the ongoing chip shortage. Ives said this is just a short-term distraction and the story is all about cloud transformation. His view is that Microsoft is well on its way to $400 per share.

South African investors need to pay careful attention to emergent international demographics. These mega trends will point you to the fastest growing segments of the world economy. Massive new stimulus from Washington DC coupled with already rampant demand, unfortunately hobbled in the short term by a logistics nightmare, and new trends in interest rates and inflation are some areas requiring careful attention.

But it is already abundantly clear who the winners and losers are and there are extensive opportunities. Make sure you don’t miss out on strategic and disruptive companies such as Apple, Microsoft, Google, Tesla and Moderna. Smaller disruptor companies are growing even faster than the heavy weights and South African investors need to concentrate their investment capital on these.

Back to the races! The most intriguing questions are which company will reach the $3 trillion mark first and perhaps even more importantly from an investment return point of view which companies will be the next ones to reach a valuation of 1 trillion dollars.

Certainly, Microsoft is well placed. This important comment from Satya Nadella, Chief Executive officer of Microsoft is useful: “What we have witnessed over the past year is a second wave of digital transformation sweeping every company and every industry. Building their own digital capability is the new currency driving every organisations resilience and growth. Microsoft is powering this shift with the world’s largest and most comprehensive cloud platform”.

Microsoft continues on its way with significant momentum and its services and products are dominant, essential (even critical) and very advantageously positioned. The growing and unfolding markets where it is clearly positioned gives it an opportunity to flourish. This is evidenced by a growth in revenue of 22% to $45.3 billion and a 25% growth in earnings per share to $2.27 for the September quarter. And over the past year Microsoft has added over 23 000 employees – further evidence of profits to come.

It’s not easy. These are very confusing times. There is great opportunity and many incredible shares to buy. But there are also a lot of shares that need to be sold and sold quickly. If you want the answers, then call Fenestra.

 

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If you are not happy with your portfolio performance or would like a second opinion,
please do not hesitate to contact Fenestra on 021 689 7855 for a free review of your portfolio.