Microsoft briefly overtook Apple as the most valuable company in the world this year and the 2 companies’ rivalry goes a long way since their founders, Bill Gates and Steve Jobs, crossed paths decades ago. It is undoubtedly that the innovation and products created by these 2 companies help to revolutionise our world and change completely how we live our lives.
In this article, I will share with you why I think Microsoft is good and why the LEAPS options are cheap. Microsoft’s products and services form a big part of our lives and will still continue to dominate in many aspects in time to come.
Why Is Microsoft Good?
In the personal computing space, Microsoft’s operating system, Windows, has the largest market share in the whole world at 87.56% as many consumers, corporates and businesses are using computers running on Windows OS. Their nearest competitor, MAC OS, only owns 9.54% of the total OS market share. Microsoft’s suite of office tools, such as Word, Excel and Powerpoint, is used by more than 1 billion users worldwide.
In the data center space, Microsoft also offers Windows servers and database licenses, i.e. Microsoft SQL. Microsoft Azure is the world’s 2nd largest cloud computing provider, only behind Amazon Web Service.
Microsoft is also in the gaming space with Xbox playsets enjoying great sales during the pandemic. Xbox is the 2nd most popular game console in 2021, behind Sony Playstation.
Microsoft also takes good market share in the teleconferencing space as Microsoft Teams is used by many individuals, corporates and businesses. MS Teams are preferred over Zoom by corporates when it comes to user privacy and security capabilities.
Microsoft also has its own social media platform in LinkedIn where many candidates connect or are headhunted by organizations requiring their expertise.
Microsoft Mesh also helps the company stake its claim in the metaverse as it allows users to engage with one another, discuss and collaborate, with presence, in a 3D world.
It is rare to find one company whose many products are widely used by consumers everywhere in world. Such dominance and popularity give the company a strong moat that protects it from being easily replaced by its competitors.
Why Is Microsoft Cheap?
One of my guiding principles in buying LEAPS is this expected growth formula that I use to determine how much % gain will the premium increase for a corresponding % increase in share price.
Expected Growth = Delta / (premium price / current share price)
In the latest Microsoft LEAPS that I bought yesterday (9 Dec 21), the details are as follow:
Strike Price: $500
Expiration Date: 19 Jan 24
Delta: 0.202
Current Share Price: $333.88
Premium: $12
Expected Growth = 0.202 / (12 / 333.88) = 5.62
This means if the share price of Microsoft were to increase by 10%, the premium will increase by 56.2%.
Having an expected growth value of more than 5 is very attractive to me and so far, only Alphabet (Google) is able to match this value. The rest of my high conviction stocks such as Nvidia, AMD or Tesla, have values less than 5. Therefore, as of today (10 Dec 21), I have already owned 28 LEAPS contracts, expiring on Jun 23 or Jan 24, and they made up 10% of my total LEAPS portfolio.
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