Can This Company Join The FAANG Club?

With FAANG stocks the talk of the town, even amongst a COVID-19 pandemic, can this other major company join the gang?

FAANG is the label given to a group of five leading tech company stocks. Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Netflix (NASDAQ: NFLX) and Google (NASDAQ: GOOGL). These companies have been high-performing in recent years, but Microsoft (NASDAQ: MSFT) has also been operating at a high level. It’s not considered among the more ‘glamorous’ stocks, but in terms of performance, it has been second to none.

Performance of the new CEO

Founded by Bill Gates and Paul Allen in 1975, Microsoft has been headed by CEO Satya Nadella since 2014. He has led the way with a number of high-profile acquisitions, such as the owners of Minecraft and LinkedIn, as well as advances in the cloud computing space with Microsoft Azure.

With Bill Gates recently stepping down from the company’s board of directors, many people saw this as a vote of confidence for the CEO and the direction he is taking.

Microsoft has experienced consistent levels of growth since Nadella took over as CEO. Its share price rose from below $50 up to highs of $185. While its price has dropped due to the coronavirus pandemic, it is one of the only listed companies with a market cap of $1 trillion.

Recent growth

Microsoft’s cloud business has been a massive driver of the company’s growth, and despite the company not releasing individual figures, analysts estimate this sector accounted for $13 billion in revenue last year. LinkedIn engagement has also grown to all-time highs, as the social platform continues to boost revenue, while its Xbox gaming segment is set to release a new console in November 2020.

The core part of Microsoft’s cloud business is Azure, which is the second-largest cloud infrastructure in the world, after Amazon Web Service (AWS). It currently holds a share of about 18% of the market versus the 33% of AWS. Microsoft had a big win in October 2019 when the U.S. Department of Defense surprisingly awarded it with its JEDI defense contract. However, Amazon is currently disputing this in court.

Azure is rapidly catching up on AWS due to Microsoft bundling together a number of its leading services such as Office 365, Dynamics and Windows. It also focuses heavily on enterprise clients, such as retailers who want to avoid contributing to Amazon’s bottom line where possible. Constant innovation is leading to the development of new tools that allow it to reach a diverse range of sectors. Microsoft is currently the SaaS vendor market leader.

It’s Office 365 segment is also growing, now boasting 200 million active monthly subscribers. One of the company’s greatest traits has been its sticky business model that retains customers year after year. All of these variables point towards sustained growth over time.

A FAANG place up for grabs?

FAANG companies in recent years have been some of the best-performing, most recognizable and popular stocks in America. There are certain corners who believe that these stocks may be in a bit of a bubble, while others say that their stellar growth can be attributed to their operational and financial performances over the past few years. Whatever the case may be, there are calls for Microsoft to be added to this list. 

Microsoft has the biggest market cap out of all these companies, so it certainly ticks that box. If Microsoft became part of FAANG, then the five most valuable companies in the S&P 500 (NYSEARCA: VOO) would be all brought together. Though Microsoft is considered an ‘old-timer’ stock by some, it is certainly worthy of a place among its Big Tech rivals in FAANG.

The big question is what acronym would be used…

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