Why Microsoft Corporation (MSFT) Stock Just Got a Whole Lot Stronger

James Brumley

Updated Tue, Jul 18, 2017, 5:00 AM

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Last week at this year’s Inspire conference, Microsoft Corporation (NASDAQ:MSFT) finally unveiled what many IT managers have been waiting a long time for … Azure Stack. In short, the platform allows enterprises to enjoy all the benefits of public cloud computing, but also all the benefits of hosting their own cloud servers in-house.

Why Microsoft Corporation (MSFT) Stock Just Got a Whole Lot Stronger

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To the average investor that might not mean a thing, and to the average owner of MSFT stock, it may not mean a whole lot more. This is actually a pretty big deal though, in that it opens the door to a whole new could market that has been previously unapproachable.

Azure Stack Is Easy to Sell

A couple of requisite definitions for the technology layperson are in order, the biggest of which is a description of “public cloud.”

That’s just a reference to data storage and consumer access to things like data and apps on servers that are housed somewhere besides the providing company’s premises. For example, video-streaming outfit Netflix, Inc. (NASDAQ:NFLX) stores thousands of hours of digital video on servers managed by Amazon.com, Inc. (NASDAQ:AMZN), delivering movies and shows from the locale most local to each Netflix subscriber.

Microsoft has its own public cloud-based storage and computing solution though, and it has developed a slick, web-based interface called Azure to make it easy for its customers to manage their offsite storage and data-access needs.

That’s not a solution that works for all potential customers though. Enter Azure Stack.

It has been a long road getting the product to the market. It was first announced in May of 2015, but hit a few stumbling blocks on the way. It was worth the wait though. One of the advantages of Azure Stack is how a customer/user pays for it.

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In a traditional cloud computing model, an enterprise only pays for what they use. That is, the manager of the data center knows how many bytes of storage or data-delivery a particular customer used in any given month or quarter, and bulls that user accordingly.

One would think a client that uses its own hardware managed by the Azure platform would own those servers and make a one-time purchase of an Azure license and be done with the billing. That is an option. Microsoft, however, is also offering per-usage billing even to those customers that operate their own cloud servers. They may not use all of their capacity, but unlike a traditional in-house server bank, these users won’t have to pay for server space they have available if they don’t actually use it.

While this may ultimately mean fewer one-time windfalls when an enterprise client switches to Azure Stack, owners of MSFT stock will see more reliable recurring revenue, as Microsoft essentially becomes a business partner with its Azure customers. As chief architect for the Azure Infrastructure and Management Jeffrey Snover put it, “If people can’t get it deployed, we get no money. I have this very strong incentive to make sure my customers are always successful.”

MSFT Opening Up New Markets

Aside from the fiscal flexibility of Azure Stack, the option of bringing cloud computing back in-house for some types of organization creates a whole new cloud market that simply didn’t exist before.

Two of these key markets are financial and medical industries, both of which have a heightened need to protect sensitive customer information. While that’s not to say any self-managed server can’t be hacked, not sharing server space in a far more open — and vulnerable — environments like a public cloud at least adds one more layer of protection.

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Other industries that would benefit from managing their cloud internally include genetic-sequencing outfits or collaboration-intensive outfits, both of which handle a massive amount of digital data that would be very costly to constantly deliver back and forth through third-party servers.

Looking Ahead for MSFT Stock

As for what kind of revenue Azure Stack might be capable of producing in the near and distant future, it’s difficult to say. The platform is still new, and while some organizations have been waiting for the choice, others may be completely unfamiliar with it. For perspective though, Microsoft’s “Intelligent Cloud” business generated $6.8 billion in sales just last quarter, and that public cloud product didn’t offer either of the aforementioned advantages of Azure Stack.

In other words, although it’s going to at least start out as a slow smolder, the introduction of Azure Stack is another sizable feather in Microsoft’s cap. MSFT stock continues to be one of the market’s more reliable, ownable picks.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.