I have gone gaga on software shares since 2013, when Satya Nadella redefined Microsoft – and tripled the valuation of the Evil Empire of Redmond in the next five years. True, Microsoft was the best Big Tech performer of 2018, an annus horribilis for the best and brightest of Silicon Valley. The world’s most exciting software shares were slammed by the bearish bloodbath on NASDAQ. However, when the going gets tough, the tough get going – or at least begin nibble at a sector that now trades at a 5.8 times forward enterprise value to revenue multiple, down a third in 2018.
Amid the carnage in NASDAQ, I flee into the safe embrace of global software’s top enchilada which unsurprisingly happens to be Microsoft. I would take advantage of the spike in the Volatility Index to sell six month put options on Microsoft where the worst possible scenario is to own its shares at 92. Azure’s stellar growth engine reignites the franchise beyond the Office/Windows cash cows. Xbox has finally got its act together. The transition to the subscription model has been a fabulous success. Apple’s iPhone/China woes mean Microsoft is the most valuable business on earth. Azure’s market share gap with Amazon Web Services has shrunk on faster relative growth metrics. The new product development cycle has accelerated. Collaboration software/Office 365 is on a roll. My buy/sell range on Microsoft is 92 – 120.