TWO STOCKS TO BUY

MICROSOFT (MSFT:NASDAQ) $255.29

robust this company is. Enterprises simply can’t run with Outlook, PowerPoint, Excel, Teams and more, and it’s almost unthinkable to consider alternatives, believes Blue Whale Growth Fund’s (BD6PG78) Stephen Yiu. We agree. Over the last decade Microsoft’s earnings have increased 272.3% but its shares have delivered a total return of more than 800% as perception around the stock has moved away from seeing it as tied to a structurally declining desktop PC market.

KAINOS (KNOS) £13.76

Years ago, it was said that no fund manager got sacked for buying IBM (IBM:NYSE), and while things have changed a lot since, the same could be said today of Microsoft, given its performance.

Microsoft has never been afraid to take risks with big acquisitions but its $68.7 billion pitch to buy Call of Duty, World of Warcraft and Candy Crush-owner Activision Blizzard (ATVI:NASDAQ) represents its biggest gamble yet.

The tie-up is far from guaranteed, with regulators in the US, EU and UK scrutinising the small print, but if it does, there is plenty of outstanding engineering talent at Microsoft capable of bringing extra value to the gaming space.

With its own expertise in the fledgling metaverse, Microsoft would be able to create a ‘multi-faceted metaverse of gaming and wider entertainment with a good chance of becoming a leader in this new field,’ says Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas Equity Fund (BCLYMF3), where Microsoft is its second largest stake.

Microsoft has not been immune to slower economic activity, reporting its slowest revenue growth in five years in October 2022, while rising energy costs and the strength of the US dollar cut away profits. Sales growth in its Azure cloud business – one of the company’s bright spots in recent years – was lower than analysts had hoped at 35%, but as Azure revenues are largely driven by consumption, as the global economy picks up, so should Azure’s growth too.

Despite an extreme 2022 Microsoft was still able to push through Office 365 subscription price hikes of about 15% to 20%, illustrating how

In the eight years since listing in London, the Belfast University spin-out has seen its market value surge from £161 million to £1.7 billion, a 956% gain. It has also been one of those rarities – a tech company that has been raising 2023 guidance, not chipping away at revenue and earnings expectations.

September 2022 half-year results saw management upgraded its earnings forecast for next year on the back of ‘strong’ results across the board, saying demand ‘has never been higher.’ First-half profits rose 16% to £34 million.

‘The strong revenue performance and backlog growth encourage us to raise our sales estimates by 5% with the implied 19% year-on-year growth in the second half well underpinned by backlog,’ said analysts at Canaccord Genuity.

The shares aren’t cheap, on a March 2024 price to earnings of 28, reflecting its above-average growth and returns potential.

DISCLAIMER: The author of this article Steven Frazer owns shares in Polar Capital Technology Trust and Allianz Technology Trust, and units in Blue Whale Growth Fund.