Microsoft$MSFT ( ▲ 0.19% ) is a tech company most of us take for granted, but it’s been a strong and steady market performer, up over 135% in the past five years, and up 20% this year alone. With big tech now pouring hundreds of billions into AI, BBTW editor Peter Green spoke with Motley Fool Asset Management’s chief investment strategist, Bill Mann, about why we still tend to gloss over the country’s most diversified mega-cap tech firm, and why that’s always a mistake.

Peter Green: What’s driving Microsoft these days?

Bill Mann:If you look at what Microsoft has done for the last 40 years, it has been one of the 10 largest companies in the U.S., which is an extraordinary streak, and it speaks to a longevity and a creativity that goes on and on. Still, from time to time, we make the mistake of underestimating Microsoft. When they came up with “FANG” (an acronym for Facebook$META ( ▼ 1.49% ) , Amazon$AMZN ( ▼ 0.93% ) , Netflix$NFLX ( ▼ 0.78% ) and Google$GOOGL ( ▲ 0.21% ) ), Microsoft wasn’t even included, but it is the most internally diverse of the mega-cap tech companies. In an era of incredible economic restructuring in this country around AI and cloud computing, it’s become the safest of the tech plays. Even in an era like this, you can trust Microsoft to have figured out where opportunities lie across the tech stack.

So where do those opportunities lie?

Their cloud computing business, Azure, has been incredible. It’sgrowing at 34%. That’s been a huge new business for them. In enterprise security, there are three main players, Microsoft, Sentinel One$SENTINELONE ( 0.0% ) , and CrowdStrike$CRWD ( ▼ 1.01% ) , controlling most of the market. That’s a $30 billion business for them, and it’s something that almost feels like it’s side-of-desk, but it’s a huge area of opportunity and advantage for them. And there’s Microsoft Co-Pilot, an AI-powered companion designed to assist with various tasks, at $30 a seat per month, $20 billion in additional revenue two years from now.

What are the threats to any of these existing businesses?

The first is that they’ve been generally pretty cooperative with OpenAI, but, as we saw last week, OpenAI is contemplating a bid for Chrome. For OpenAI to make a move to make itself independent, that can be harmful to Azure because they’re pretty well integrated. But I tend to think of Microsoft as being the guy behind the guy. So it’s at a lower risk of being disintermediated, even from some of its hyper-scaling peers. The other big risk to Microsoft? They’re spending $30 billion in CapEx this quarter, and there are structural reasons why the demand for AI and cloud could be slowed down, like the power grid can’t handle all this demand. I don’t care how big you are; if you strand $30 billion in capital expenditures, that’s meaningful. I see plenty of speed bumps for Microsoft and for the entire sector, but given the internal diversity that they have, it is still my favorite bet in the sector.

Is the demand really there for all this AI work?

The demand will be there, it’s almost a sure thing because it’s happened in every other revolution in the economy, going back to the railroads, that a lot of the capital expenditures are going to be stranded. They’re not all going to win, but none of the hyperscalers want to be left behind.

How is Microsoft dealing with the AI energy bottleneck?

They say they have a plan and you would have to assume that all of these companies have recognized the risk, because they’ve already had difficulty sourcing energy. But that place in line is much more important than what the demand for the services looks like in 2028.

So is Microsoft a sell, a hold, a buy?

To me, it’s the highest quality investment opportunity in the space.

#NotFinancialAdvice

This interview has been edited and condensed for brevity and clarity.

—Peter S. Green

Watch Big Business This Week on Cheddar—and YouTube!Big Businesses mentioned this week

$MSFT ( ▲ 0.19% ) $META ( ▼ 1.49% ) $AMZN ( ▼ 0.93% ) $NFLX ( ▼ 0.78% ) $GOOGL ( ▲ 0.21% ) $SENTINELONE ( 0.0% ) $CRWD ( ▼ 1.01% ) $INTC ( ▼ 0.87% ) $SFTBY ( ▼ 0.33% ) $PLTR ( ▲ 0.13% ) $NVDA ( ▼ 0.31% ) $ORCL ( ▼ 0.54% ) $AMD ( ▼ 0.8% ) $ARM ( ▲ 1.21% ) $TGT ( ▼ 2.54% ) $WMT ( ▼ 4.91% ) $AMZN ( ▼ 0.93% ) $MCD ( ▲ 0.09% ) $TSLA ( ▼ 1.08% ) $CLRS ( 0.0% ) $PMRTY ( ▼ 0.01% ) $SHCO ( ▲ 0.06% ) $CCW ( 0.0% ) $NXST ( ▲ 0.72% )

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The usual suspects

• Inside Intel? The Trump Administration wants to take a $10.86 billion grant awarded to Intel $INTC ( ▼ 0.87% ) under the Biden Administration’s CHIPs Act, and turn it into a 10% equity stake in the troubled U.S. chipmaker. Intel’s problem is that it’s not making chips that people want to buy. The CHIPs aid was meant to help it build facilities to make market-worthy chips. To make the investment work, the Trump administration would need to lean on potential Intel clients. It’s reminiscent of France’s state-run industrial policy, “dirigisme,” where the government owned golden shares in large enterprises, awarded them state contracts, and ensured they kept employment high. On Monday, Intel said it has been promised a $2 billion investment from Softbank $SFTBY ( ▼ 0.33% ) , which has already promised Trump it will shower the U.S. with hundreds of billions of dollars of investments. Markets aren’t overconfident in the strategy: Intel shares are down 7% in the past year, and about the same in the past five days.
• The tech stock drop. By the time you read this, tech stocks may have recovered, but a number of the most high-flying tech stocks were down significantly Thursday morning. Palantir $PLTR ( ▲ 0.13% ) dropped nearly 20% since Friday before recovering a bit, Oracle $ORCL ( ▼ 0.54% ) is down 6% since Tuesday, AMD $AMD ( ▼ 0.8% ) is down 8% in the past five days, Nvidia $NVDA ( ▼ 0.31% ) fell as much as 7% on Tuesday alone, Arm $ARM ( ▲ 1.21% ) is down 6.5% in the past five days, and Softbank is down 15% since the market closed on Monday. What’s going on? The consensus from Cheddar Street is that long-term shareholders are cashing out (the famous profit-taking) and others are wary that AI, big tech, and big chips may have reached a plateau for now.
• Off-Target: Target’s $TGT ( ▼ 2.54% ) got a new boss, but he’s cut from the same cloth as the old boss. COO Michael Fidelke, a 20-year Target vet, will take over in February from Brian Cornell who’ll become executive chairman. But will that help? Profits plummeted 20% in the last quarter as shoppers shunned the store’s offerings, and only massive sales kept revenue from bottoming. Analysts appear to be doubting an insider can fix the chain, hammered by Walmart $WMT ( ▼ 4.91% ) and Amazon $AMZN ( ▼ 0.93% ) , and the impending price shock of the tariffs. Shares in Target are down more than 6% since the announcement. They’re down 32% in the past 12 months. 
• When inflation goes high, Mickey D goes low: As lower-income Americans run out of cash, their favorite eatery is cutting prices. A hard-won fight with franchisees has McDonald’s $MCD ( ▲ 0.09% ) cutting the price on combo meals by 15%, with plans to offer a $5 breakfast and $8 Big Mac combos. Even as U.S. same-store sales grew 2.5% in the last quarter, traffic was down 2.8% at fast-food restaurants in general. The firm’s shares are up 2.5% in the past 5 days. 
• Zuck unstuck? Meta $META ( ▼ 1.49% ) CEO Mark Zuckerberg has launched another re-org as he seeks to make the Facebook parent a dominant player in AI, and get new AI products to market faster. Meta Superintelligence Labs is splitting into four groups, one focused on A.I. research, one on Zuck’s “superintelligence,”; another on products, and one on data centers and infrastructure. Meta said its investments could reach $73 billion this year, with most of that going to AI.

The usual suspects

• Claire’s is still there! Tween costume jewelry and ear-piercing fave Claire’s just got a lifeline out of liquidation. The bankrupt chain halted liquidation sales at most of its North American stores, and said it’s selling most of its business to PE firm Ames Watson. The new buyers say they want to preserve “a significant retail footprint” for the chain.
• Grinning all the way to the bank: Chinese retailer Pop Mart’s $PMRTY ( ▼ 0.01% ) stock popped 12% on Wednesday after it announced the impending sale of mini-Labubu dolls, those smirking elvin fluffies collected by Rihanna and Dua Lipa. The minis will be small enough to hang on mobile phones. Don’t let your tween daughters near your credit card.
• I would never join a club that would take me as a member: Soho House $SHCO ( ▲ 0.06% ) , a string of clubs for people who know wealthier and more interesting than you or I, is going private after losing more than half a billion dollars since going public. Investors include Ashton Kutcher, and the company’s existing executive chairman, Ron Burkle. The deal values the floundering business at $2.7 billion. Boutique hotel owner MCR will take a stake in the new company, hoping to revive interest in the club concept. But this is the only year that Soho Club has been profitable as a public company. That may be because of an existential dilemma Groucho Marx would be proud to outline: While defined by its exclusivity, the company has 46 clubhouses and 270,000 members. That’s an awful lot of D-listers and then some. Yet if you kick people out, you can’t make money. Or: Can you?

The media mirror

• Subtalk: Overwhelmed by all those subscription TV services? Major e-commerce sites and cable companies want you to buy your streaming services through them. Amazon, with 46 million streaming subs is leading the charge —they take a 30% to 50% commission for the subscriptions they gather for streamers, the New York Times reports. But those high rates from Amazon have kept Netflix $NFLX ( ▼ 0.78% ) , for one, from signing up. Still, HBO Max found itself hostage to Amazon when it left Prime Video in 2021. It lost 5.1 million subscribers, but when it returned a year later, it won 3 million subscribers within 3 months. 
• MSNB-whatevuh? As Comcast $CCW ( 0.0% ) prepares to spin off liberal cable news channel MSNBC, severing it forever from NBC News, it’s given the channel what is possibly the worst brand name in TV history. The new moniker: MS Now, short for My Source News Opinion World. (The MS originally came from Microsoft, which created the channel with NBC back in 1996). CNBC gets to keep its name, which always stood for Consumer News & Business Channel, but both will drop the NBC Peacock logo. 
• The Fox Follies: Remember the $787.5 million Fox paid voting machine company Dominion to settle defamation claims after Fox alleged Dominion had fixed the 2020 presidential election? Well, voting machine firm Smartmatic is still pursuing its own suit for $2.7 billion over the same unproven allegations of fraud, and conservative TV channel Newsmax has agreed to pay Dominion $67 million for broadcasting similar false claims.
• Mergermania: Local TV giant Nexstar $NXST ( ▲ 0.72% ) says it’s agreed to buy Tegna, the spinoff holding Gannett’s TV stations. Adding Tegna’s 64 local stations would give Nexstar 265 stations in 44 states, and requires FTC approval, especially since the two overlap in 35 markets. Nexstar CEO Perry Sook says the $6.2 billion deal (that’s just a tad larger than Nexstar’s market cap) is vital to compete with tech giants Meta and Alphabet. Conservative network Sinclair is also angling for Tegna.

Trumplandia

• The Apprentice: Fed Chair Edition. Sub-plots within plots! Trump took to social media to demand that Fed governor Lisa Cook “resign now !!!,” after Trump ally and federal home mortgage chief Bill Pulte said Cook appeared to have claimed two different homes as her primary residence when applying for federally guaranteed mortgages, in order to get better loan terms. Removing Cook wouldn’t give Trump allies a majority on the Fed. There are still only two governors who are avowedly pro-Trump, of the 12 members who vote on interest rates, but a replacement could help put public pressure on chair Jerome Powell.
• The Gilded Aged: The name is Bond. Donald Bond. Shaken or stirred, Donald Trump has spent at least $100 million buying corporate and local government bonds since he became president, CNBC reported, citing an Aug. 12 filing with the Office of Government Ethics. The corporate bonds include those issued by T-Mobile $TMUS ( ▼ 0.54% ) , UnitedHealth $UNH ( ▲ 1.92% ) , Home Depot $HD ( ▼ 1.01% ) , and Meta $META ( ▼ 1.49% ) . All but Home Depot are closely regulated by federal agencies. 

Elon’s world

• Y Not? It may not be quite big enough for Musk’s own extended family, but a new, extended Tesla $TSLA ( ▼ 1.08% ) Model Y is coming to China. With three rows of seats, it can hold six people, and will sell for about $47,000.  ”This variant of the Model Y doesn’t start production in the US until the end of next year,” Musk said on X, adding, “Might not ever, given the advent of self-driving in America.” Tesla shares are down more than 4% in the past 5 days, and down a third from their all-time high last December. 
• Short ride? Short-seller Jim Chanos says it’s “absurd” to think that Musk will make Tesla Robootaxis profitable when ge can’t cut the cost per mile below 20 cents.
• About that $29 billion comp package. While Musk and X challenge a Delaware court’s decision to block his 2018 comp package that was worth nearly $58 billion at one point, a new shareholder group is challenging the company’s interim award of a $29 billion equity grant. Raising concerns about executive comp rules compliance with Nasdaq, SOC Investment Group says the board failed to win shareholder approval for the grant.

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