3 things about Microsoft stock that savvy investors know

Investors are about to get a deluge of new information about it Microsoft‘s (MSFT -0.89%) company. The software giant will release fourth quarter 2023 results on July 25, in a report that will likely include its official outlook for fiscal year 2024.

Savvy investors know how to separate key growth metrics from the noise surrounding quarter-over-quarter sales volatility. With that in mind, let’s take a look at three factors that really make this stock stand out as an investment today.

1. Microsoft’s activities are diverse

A good reason to like Microsoft stock is its diversity. You can gain exposure to business cloud services by purchasing Amazon, For example. Add Palo Alto Networks (PANW 0.73%) to your cybersecurity industry portfolio. And buy Take-Two interactiveto capitalize on the long-term growth in the video game industry.

Or you can just buy Microsoft and gain exposure to all of these growth niches and more, including artificial intelligence (AI) and productivity software. It’s valuable to own such a diverse group of add-ons, all under one brand umbrella. Even if some of Microsoft’s big bets don’t pay off, the returns from the winners are likely to offset those disappointments.

2. Microsoft is very profitable

Microsoft’s financials have deteriorated slightly since the peaks of the pandemic reported in 2021 and early 2022. But the company remains one of the most efficient generators of both cash and profit.

Take the last quarter, for example, when operating income was up 15% year over year after factoring in currency fluctuations. That boost resulted in a whopping $22.4 billion in profit on just $53 billion in sales.

MSFT operating margin (TTM) data through YCharts

Few companies can achieve something like the resulting operating margin of 44% of sales. Apple (AAPL -0.62%), by comparison, sports a 29% margin today. Amazon’s rate is closer to 3%, and Palo Alto Networks has only recently become profitable.

3. Microsoft is a pricey stock

As you might expect, an investor will have to pay a premium for these valuable assets. Microsoft stock is now valued at more than 12 times annual revenue, about even with faster-growing Palo Alto Networks. You could own Apple for a relative bargain of 8 times sales. Amazon is still cheaper at less than 3 times sales.

It is possible that Microsoft’s valuation will move closer to these competitors in the coming quarters, especially if the company announces disappointing sales results at the end of July or forecasts a difficult operating year. But the most likely scenario is that the company will continue to steadily gain market share in several major global technology industries. It won’t be long before the cyclical downturn also comes to an end in the operating system segment or in the consumer technology devices division.

That bright long-term outlook, plus Microsoft’s class-leading profit margins, ample cash flow and rising dividend payout all make it an extremely attractive stock to consider adding to your portfolio. For technology stock investors who don’t want to take on excessive risk in looking for the next big thing in a rapidly evolving industry, this company offers a great way to get exposure to these trends in one of the most valuable companies in the world.