NEW YORK (TheStreet) -- I recently focused on Microsoft's (MSFT - Get Report) dividend bull thesis. I love Microsoft as a long-term dividend play but that's only part of my attraction to the software maker.
We shouldn't, but if we discount the company's dividend and focus on capital appreciation the result remains the same -- Microsoft is a strong buy. In fact, I think Microsoft will reach $50 and the company's value overshadows other tech giants Google (GOOG), Apple (AAPL) and Amazon (AMZN). Shares currently trade around $42, up over 12% for the year to date.
Microsoft dominates the PC and laptop market. It's off to a slow start in tablets, but we've seen this movie before. Internet Explorer was slow at first and gained a leadership position. Weakness in the PC market has wrongly led many investors to believe the company is past its prime.
The fact is, despite a relatively modest increase in share price, revenue and profits continue to grow and during the past 10 years, the share price failed to rise proportionately. In other words, Microsoft is a better value now compared to 2004, not long after the dot-com bust.Indian-born and U.S.-educated Satya Nadella, the new chief, adds renewed vigor for a company that changes CEOs less than once a decade. Previously, Nadella led the Microsoft Cloud and Enterprise group. Nadella's ascent doesn't come as good news for Amazon. Amazon and Microsoft share the common characteristic of having multiple and distinct product offerings and revenue streams. Concerning the most to Amazon is the two tech companies overlap the most within cloud computing services. Amazon is the number one provider, called Amazon Web services (AWS), and Microsoft's Onedrive is number two.
It's a battle I believe Microsoft is destined to win. Cloud computing is closer to Microsoft's core business, and the company enjoys a distinct server software cost advantage. Linux is widely known to power the Internet but Microsoft is closing the market share gap, according to Microsoft TechNet and Netcraft. The two companies are currently in the midst of a price war while dragging Google along for the ride. IBM (IBM) is another major player in the cloud space. According to IBM, it's the number one cloud provider based on total profit generated from cloud-related services. IBM has resisted dropping its prices as it attempts to position its services as the top-shelf offering. The strategy could backfire and allow Microsoft to gain revenue and ultimately profit as it gains market share.
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