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I'm buying this Tech stock :) - YouTube
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hi everyone welcome to today's video so
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first and foremost this is not a
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wallpaper this is actually a natural
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background i'm currently in switzerland
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no i'm kidding i'm in manali it is as
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beautiful as switzerland so highly
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recommend it that if you are planning a
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vacation do come to manadi now over to
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today's video so on today's video i'm
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going to talk about a stock and i'm
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taking positions in this stock
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the interesting thing about this stock
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is three data points so first and
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foremost this stock has given roughly 17
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percent kagger every single year for the
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last 15 years
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second key point that its credit rating
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is at par with the u.s economy's credit
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rating and much better credit rating
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compared to many other developing
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nations and developed nations third and
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finally the stock currently exists at 30
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discount from its peak so which stock am
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i talking about the stock's name is i'm
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not going to reveal it please watch the
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video for a couple of minutes at least
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there is a reason why i'm not revealing
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the stock name right off the bat because
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you will listen to it you will go away
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and you will not understand the
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conceptual part of it there are at least
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two points that i want you to remember
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as of now so first and foremost if you
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look at the entire macroeconomic
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situation we are in a very volatile
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phase of the world's growth what is
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happening is that there is us on one
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side of the equation and then there is
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russia and china on the other side and
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they are pulling the world apart
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india becomes a party to this because
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india is a very important nation but the
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problem is that if you look at india
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internally everything looks good but the
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world is so disorganized as of now and
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if you keep on analyzing stocks just
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from india's perspective and only indian
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stocks and do not even bother to learn
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about what is happening outside india
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you will be in for a very rude shock
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something similar happened in 2008 that
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the 2008 financial crisis it did not
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originate because of india it originated
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in the us due to banking system faults
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in the u.s subprime prices fought in the
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u.s but india also got hit very badly so
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the key lesson here is that even if you
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are an indian stock investor and if you
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do not want to invest even one single
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rupee out of india still you must
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understand some of the key developments
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that are happening outside india second
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key point that many of you ask me that
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akshat we want to invest for the long
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term we have some money lying around we
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just want to invest and forget so what
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type of companies we should be picking
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right now such opportunities are quite
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massive in the us and at least listen to
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five minutes of this video and i will
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clarify a lot of doubts for you but let
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me give you a framework and if you use
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this framework even in the indian
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context it will suffice and you can pick
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some equities in the indian market that
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might align with this framework and you
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can start buying them now in order to
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have any asset that you are considering
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long-term investing at least one of
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these characters should get met and
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ideally more than one characteristic
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should get met so first is the concept
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of capital preservation that if you are
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investing in an asset class and it does
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not go down in value that's a fairly
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good asset a classic case in point would
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be gold that hey gold probably does not
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give massive returns if you look at the
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yearly returns of gold the gold returns
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have been very basic it has not given
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more than three to four percent on an
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yearly basis over the last hundred years
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but gold is great in terms of capital
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preservation that if you put hundred
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rupees right now in gold probably that
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hundred rupees will stay hundred rupees
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but if you go and invest in a lot of
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stocks right now your hundred rupee
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might even become fifty so that is the
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concept of capital preservation the
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second concept is the capital growth
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that for example why are you investing
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you are investing because if you are
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putting in 100 rupees you are doing it
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with the hope that it at least becomes
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110 or at the very least it is able to
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beat fixed deposit returns so that is
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the reason why you are making
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investments so capital growth should
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also be there on that particular asset
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third and finally the risk reward
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equation makes sense now what is
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happening in the u.s stock market is
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that majority of the tech stocks have
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corrected this includes big name like
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apple amazon netflix what not right so
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all these stocks have corrected so this
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reduces your risk of buying these type
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of stocks right now so in that context
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today i'm going to talk about one such
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stock that is meeting all these three
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parameters and the stock's name is
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microsoft so i'm going to speak about
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the microsoft stock i have not been an
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investor in microsoft but i'm building
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my positions now because i feel that the
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risk reward equation associated with
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this stock is great and it is meeting
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all these three parameters that are
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critical from a long-term investing
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viewpoint so let us get the discussion
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started and let us understand the first
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point which has to do with capital
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preservation or microsoft's ability to
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pivot such business and survive in a
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highly volatile environment so let me
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take you to the revenue mix of microsoft
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over the last 10 years and look at the
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way it has changed its business from
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2012 to approximately 2021. in 2012 it
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used to have all these business lines
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and it used to make this mix of revenue
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from different sources now over time its
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business model has evolved for example
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right now which is a cloud platform for
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microsoft and it is ranked number two
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after amazon it has become a very
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promising avenue for microsoft a lot of
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revenues are coming from it going
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forward they are focusing a lot on cloud
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computing and this industry is also
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growing microsoft genius has been that
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they have been able to pivot their
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business model that's part a and second
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and foremost they are not dependent on
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just one income stream they are very
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smart in terms of thinking 10 years
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ahead of the market and coming up with
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product suits technologies restructuring
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their r d in such a way that they are
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always ahead of the curve this ability
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to preserve their company this ability
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to preserve their revenue stream this
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ability to innovate and become a market
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leader quickly in certain spaces this
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proves a point that microsoft is a very
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stable company which is likely to
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survive even in the next 20 years a
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related point through this chart is
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fairly simple that they have not only
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been able to restructure their
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businesses as the time has turned they
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are also able to consistently grow
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revenues and profits for their company
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all the growth that microsoft is
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exhibiting that is profitable
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sustainable growth that is the key
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message key point and many of the
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startups can learn so many things from
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microsoft now this is just not my
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viewpoint so there are three major
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agencies that give out credit ratings
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and if i just take you to that chart
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that snp which is standards and poor
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which is one of the four most rating
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agencies it has given a stable outlook
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to microsoft which again has given a
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triple a rating moody's which is again a
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very respectable credit rating agency it
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again has given a triple a rating
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getting stable ratings from three of the
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most prominent rating agencies in a
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volatile environment that proves the
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strength of microsoft now with this
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discussion out of the way that is
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microsoft likely to survive in the next
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15-20 years for which the likelihood
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seems very very high let us structure
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our conversation on point number two
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that does microsoft have the ability to
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grow its revenues so let us look at the
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historic data here and you will be
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surprised to learn if you do a
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comparison with the most diversified
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index which is vanguard 500 index and
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compare it with microsoft if you take a
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look at one year return it has given an
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average return of 33. if you take a look
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at three year it has given 26 if you
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pick anything even the last 15 years the
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returns have been close to 17
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which has beaten the index quite
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substantially so the point is that
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history tells us that microsoft has very
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clean management it has ability to
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innovate it has consistent ability to
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generate profits revenues and become a
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market leader and even the stock market
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believes that microsoft is a very good
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company to hold but now we will get into
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the debate that akshath you know what
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all the tech stocks especially the u.s
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tech stocks they have been crushed they
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were overvalued they were over inflated
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pe was high etc etc so therefore
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microsoft stock also got crushed the
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answer is yes that the microsoft stock
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did great crush but that does not mean
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that the business is bad if you take a
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look at its latest result it has shown
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growth on every single vertical from
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which it is making money this is not a
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microsoft specific problem the business
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has not suffered at all it is that the
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market itself has gotten shrunk and as a
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result microsoft has become a collateral
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damage there is nothing wrong with the
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business per se if you take a look at
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margins the margins are very much intact
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if you look at operating income that has
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grown if you take a look at net income
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it has grown so there has been no
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problem with microsoft per se it is just
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that the total supply of money that is
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getting crushed due to inflationary
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concerns and bunch of other issues and
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as a result microsoft has become a
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collateral damage the more these type of
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businesses fall the more you should be
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investing this is not an investment
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advice you should do your own due
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diligence i'm just simply telling you
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what i'm going to do now let's run
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microsoft through the third part of our
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long term investment framework which is
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analyzing the risk reward equation so
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let us first analyze where we are
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standing in terms of prices when it
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comes to microsoft and here is a very
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interesting chart for you if you check
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from its peak microsoft has fallen by
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roughly 30 percent from its peak this is
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a fairly large fall for a company of
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microsoft stature your obvious argument
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would be that akshat you know what pe
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were very very high i had done a tweet
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separately on p e ratios that people
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tend to believe and judge everything
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with a simple parameter called as price
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to earning it is not a right matrix to
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judge a lot of things because a in the p
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e ratio the price this p indicates price
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no one can predict the price because
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these days the prices are being
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manipulated by the money supply that is
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existing if feds end up creating lot
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more money then the prices will
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fluctuate quite a lot if feds decide to
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increase the interest rate and pull out
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the money from the economy then the
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prices of everything is going to get
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crushed the second key part of this
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equation has to do with e earnings
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earnings in simple terms means that hey
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if this is microsoft now at what rate or
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what velocity is the money flowing
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through microsoft stock no one again can
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predict the velocity of this money so
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this entire p e ratio is not a very
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useful matrix when it comes to making
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decisions these days especially around
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growth stocks so please do not take pe
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as a holy grail in terms of making your
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investments you will never be able to
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make concrete decisions based on pe but
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contextualizing this from microsoft's
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case is the pe overvalued undervalued we
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don't know because p can be dramatically
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moved the next time feds print more
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money i can write and give it to you
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that something like microsoft is going
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to give impressive gains again so if we
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are trying to ascertain that is
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microsoft available at a good price my
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answer would be a yes to that now let's
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analyze the second and the last part of
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this framework which has to do with
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growth potential because when you are
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computing the risk reward equation you
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have tried to compute the risk part of
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it by looking at the price part of it
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now reward can be simply ascertained by
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looking at what the growth avenues of
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the company would be
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this is a very important aspect because
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the prices of the stock are driven by
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the future of the stock or the future
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earning future growth potential future
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profit margins so therefore if you're a
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long term investor you must understand
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that where this growth in microsoft
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stock is going to come from so there are
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three key avenues through which
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microsoft will continue to make money or
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will make money in the future the first
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and foremost is its cloud business now
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here is a very quick chart for you which
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shows why a lot of companies are
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investing so much money in amping up
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their cloud-based infrastructure because
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the total addressable market size for
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cloud is very very large a lot of small
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firms are getting started they need
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cloud-based support large firms are
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migrating towards cloud-based software
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services so the point is that this
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public cloud total addressable market
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size is only going to grow with time
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this is a sunrise industry there is a
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reason why companies like amazon and
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microsoft are fighting a battle here is
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microsoft getting beaten badly by amazon
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on cloud the answer is somewhat yes that
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yes amazon is the number one player when
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it comes to cloud but the type of
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services that amazon cloud provides
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vis-a-vis the microsoft cloud slash
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azure provide those are slightly
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different so as we go from a to b both
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microsoft and amazon will cater to
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different set of audiences and offer
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different functionalities via their
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clouds and here are some quick numbers
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regarding the q1 performance of
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microsoft cloud services that its sales
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grew by 32 with an annual run rate of 94
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billion dollars this is like crazy
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amount of business that they are doing
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through cloud despite being the number
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two player in the industry now the
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second reason for growth for microsoft
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stock in the future would be its
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metaverse business now this has got
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nothing to do with cryptocurrency so
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please don't drop off what type of
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metaphors is microsoft trying to build
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it is trying to build an office based
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meta verse what is an office based
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metaphors so right now imagine yourself
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to be working from home you do zoom
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meetings you probably like it because
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you know you can go to zoom meetings
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wearing your pajamas and turning off
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your camera during mid meeting and
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enjoying like watching my videos on
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youtube on a parallel screen what not so
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the bottom line is that this work from
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home economy is useful no doubt it is
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useful for people working from home
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vis-a-vis the corporates who do not have
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to run physical offices at scale it's
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useful for both but there is a problem
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with this work from home economy the
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problem is that this environment of work
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from home is not immersive enough so
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microsoft through its metaverse what it
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is trying to do is that it is trying to
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build more immersive work from home type
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of an environment where you can
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collaborate with your colleagues where
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you can use microsoft oriented tools and
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productivity suits to enhance your
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productivity for office work so that is
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a high level understanding so the
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specific set of products that microsoft
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will release we will have to see it with
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time but to cut the long story short
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this is an avenue that microsoft is very
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clearly exploring they have already
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existing mode in terms of offering
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productivity oriented tools and they can
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definitely build this layer of
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innovation and benefit from it immensely
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why am i saying immensely because if you
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take a look at some of the research
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reports which talk about meta versus it
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will become a 400 billion dollar
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industry by 2028. so the bounty or the
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price to be won in this industry is huge
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and microsoft is already leading that
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space when it comes to building an
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office based methods now the third and
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final reason for microsoft growth will
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come from its existing set of products
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now just to give you a couple of
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examples right now microsoft is
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available on over 1 billion computers in
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the world and still it is growing at a
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rate of 12 to 25 percent per year
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linkedin which is one of the businesses
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that microsoft has acquired it is
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growing at a rate of 35 per year
[853]
linkedin was a poorly monetized platform
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but now microsoft has started to figure
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out avenues as to how it can monetize
[859]
linkedin you might have started seeing
[861]
some ads they have started running
[863]
creator accelerator programs they have
[865]
never invited me i don't know why but
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yes they were very kind to give me an
[868]
award this year on linkedin for being
[869]
one of the top creators i was also on
[871]
their podcast the reason why i'm telling
[873]
you these points is that they are really
[875]
trying to engage creators now and going
[877]
forward linkedin is going to monetize
[879]
itself really really well so that
[880]
becomes another channel for revenue
[882]
growth for a company like microsoft so
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with all these positive sentiments you
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will say that akshat i'm selling my
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house and i'm going to buy microsoft
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tomorrow please do not do this please
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understand the four risks with microsoft
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stock so first and foremost risk that
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microsoft runs is the margin decline
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risk the reason for that is fairly
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simple that as any technology matures
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the margins keep on going down because
[904]
more and more competition enters the
[905]
market a classic case in point can be
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the mobile phone technology that when
[910]
mobile phones initially started they
[911]
were very expensive when computers
[913]
earlier started the cost was very high
[915]
the cost of production was very high but
[917]
probably the margins were higher over
[919]
time as more and more players entered
[921]
these spaces the margins kept on getting
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chipped away and now we have reached a
[925]
stage that if you are buying a
[927]
smartphone which cost less than 5000
[929]
rupees the margin for that company has
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come down to almost less than three
[932]
percent so that is the world we are
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living in that as technology matures the
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margins get shrinked and margins are
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getting shrinked for a company like
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microsoft also when it comes to its
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software related products so this is the
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first key risk that they run the second
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key risk is the acquisition risk so
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acquisition simply means that microsoft
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is going and acquiring a set of
[950]
companies set of businesses for
[952]
accelerating its growth
[954]
now many of these are being blocked by
[956]
regulators but meanwhile what happens is
[958]
that there is a lot of hover that is
[960]
spread in the market that you know what
[961]
microsoft is going to go and acquire
[963]
this particular company and the stock
[965]
price has a run up and that gets
[966]
reflected in the stock sentiment and
[968]
price but when the acquisition does not
[970]
get through it kind of hurts the
[972]
microsoft stock now let me talk about
[974]
that case by using the example of
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activision which is one of the top
[978]
gaming companies in the world microsoft
[980]
recently made a bid to acquire it and
[982]
that acquisition is likely to go through
[984]
in 2023 there has been a lot of bullish
[986]
sentiment in microsoft stock because of
[988]
this recent acquisition now if you read
[991]
the commentary of u.s federal trade
[993]
commission they are reviewing that
[994]
particular deal and they are trying to
[996]
determine whether the takeover would
[998]
give xbox an unfair comparative
[1000]
advantage so if they find that you know
[1002]
what this deal is probably not right for
[1004]
the market they might unwind or nullify
[1007]
that acquisition now again the microsoft
[1009]
stock will get hurt third risk that
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microsoft is witnessing right now is the
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talent acquisition risk or talent
[1015]
acquisition war this is a war that is
[1017]
going on at almost every major tech firm
[1020]
apple amazon netflix google what not
[1022]
right so this is a talent risk simply
[1024]
because of the fact that all these
[1026]
companies in order to stay relevant what
[1028]
do they need to do they need to focus on
[1031]
research and development come out with
[1033]
really interesting products and for that
[1035]
they need good workers and if they are
[1037]
not able to retain the talent then it
[1038]
becomes a problem a related question
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that you might have is that akshat who
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would not want to work with microsoft
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lot of reasons right in fact i
[1045]
personally know a lot of software
[1047]
developers who started out at microsoft
[1049]
but they migrated to working with amazon
[1051]
because microsoft was not allowing them
[1053]
to build their own youtube channels and
[1055]
bunch of other different things so these
[1057]
type of small policies can also impact
[1060]
the talent war can hurt companies like
[1062]
microsoft in the long run now comes the
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final risk which is the innovation risk
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and i feel that this is the biggest
[1067]
threat for a company like microsoft or
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apple or amazon
[1071]
web 3.0 ecosystem is already here
[1074]
whether we like blockchain
[1075]
cryptocurrencies or not web3 ecosystem
[1077]
is getting a lot of money still despite
[1080]
the markets getting crushed despite
[1082]
unicorns getting crushed web 3.0
[1084]
ecosystem is still getting crazy amount
[1086]
of money it's only a matter of time that
[1088]
a lot of web 2.0 ecosystems are going to
[1091]
get converted to a 3.0 ecosystem in case
[1094]
you are wondering what web 3.0 is it
[1096]
simply means the advanced version of the
[1098]
internet which is powered by blockchain
[1099]
and cryptocurrency so to say and it is
[1101]
much more immersive in nature an example
[1104]
would be microsoft trying out the
[1106]
metaverse space but a lot of competition
[1108]
is already there in web 3.0 ecosystem it
[1111]
is only a matter of time that existing
[1114]
fan companies are going to get replaced
[1116]
by web 3.0 projects in the next 10 years
[1119]
so this is a change that is already
[1120]
underway and it will only accelerate
[1122]
with time and it remains to be seen that
[1124]
how do companies like microsoft will
[1127]
rise up to this new challenge but i hope
[1129]
you enjoyed the video you understood the
[1130]
pros and cons let me know in the comment
[1132]
box that are you going to invest in a
[1134]
company like microsoft are you going to
[1136]
wait or are you not going to invest at
[1138]
all so i would love to read your
[1139]
commentary and thank you so much for
[1140]
watching this video i will see you the
[1142]
next time
[1150]
you
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