During the worst of the COVID-19 pandemic, technology became a lifeline for most people globally amid stay-at-home mandates which fostered remote working arrangements and distance learning. This resulted in a surge in internet penetration and major digital adoption and transformation. The innovative, modern, and updated software infrastructure is the driving force of digital transformation and adoption of IT technologies, including cloud computing, artificial intelligence and machine learning, Internet of Things (IoT), and virtual reality.
Gartner stated that more than half of enterprise IT spending might be shifted to the public cloud and away from traditional solutions by 2025. And according to statista.com, the system infrastructure software segment is estimated to reach $139 billion in revenue in 2022 and $156.40 billion by 2027, growing at a 2.4% CAGR. Approximately $69 billion of the total revenue is expected to be generated in the U.S. in 2022. The increasing demand for efficient data governance and the growing need to mitigate data breaches and other risks have created vast opportunities for the infrastructure software market.
Given the backdrop, we think it advisable to invest in high-quality infrastructure software companies Microsoft Corporation (MSFT), Oracle Corporation (ORCL), and International Business Machines Corporation (IBM), given their massive growth potential.
Click here to check out our Software Industry Report for 2022
Microsoft Corporation (MSFT)
MSFT in Redmond, Wash., is a leading American multinational technology company that develops, licenses, and markets computer software, services, electronic devices, and solutions worldwide. The company operates through three segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing.
On March 16, MSFT and Rogers Communications Inc. (RCI) entered a five-year strategic partnership to revolutionize hybrid workplace communications and power 5G innovation across Canada with Azure’s innovative cloud services. This collaboration is expected to leverage MSFT’s capabilities, accelerate the company’s global expansion, and boost revenue streams.
On March 4, MSFT completed the acquisition of Nuance Communications Inc. (NUAN). This strategic acquisition brings together Nuance’s conversational AI and ambient intelligence with MSFT’s trusted industry cloud offerings and should accelerate industry-specific cloud strategy that might transform the way organizations work.
In its fiscal year 2022 second quarter, ended Dec. 31, 2021, MSFT's total revenue increased 20.1% year-over-year to $51.73 billion. The company’s gross margin grew 20.4% year-over-year to $34.77 billion. Its operating income improved 24.3% from the prior-year period to $22.25 billion. Its net income rose 21.4% year-over-year to $18.77 billion. And the company's earnings per share rose 22.2% in price year-over-year to $2.48.
The $49.04 billion consensus revenue estimate for its fiscal year 2022 third quarter, ended March 31, 2022, represents 17.6% growth from the same period in 2021. The $2.19 consensus EPS estimate for the to-be-reported quarter indicates a 12.5% year-over-year rise. It is no surprise that MSFT has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock gained 14.2% in price over the past month and 27.1% over the past year. It closed yesterday's trading session at $314.97.
MSFT's POWR Ratings reflect this promising outlook. It has an overall grade of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
MSFT has an A grade for Sentiment. It has a B grade for Quality and Stability. Within the Software - Application industry, it is ranked #21 of 160 stocks.
To see additional POWR Ratings (Value, Growth, and Momentum) for MSFT, click here.
Note that MSFT is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
Oracle Corporation (ORCL)
ORCL in Redwood City, Calif., provides products and services that address enterprise information technology (IT) worldwide. The company provides Oracle cloud software as a service offering that includes various cloud software applications. In addition, ORCL offers cloud-based industry solutions across various industries, cloud and license businesses’ infrastructure technologies, hardware products, and other hardware-related software services.
Yesterday, ORCL’s Oracle Cloud Infrastructure (OCI) was adopted by DOCOMO, INC. (DOCOMO), the largest mobile operator in Japan, to build its new development environment for ALADIN (All Around DOCOMO Information Systems). This might boost the company’s revenues and business growth.
Last month, ORCL launched 11 new compute, networking, and storage services and capabilities to enable customers to run their workloads faster, more securely, and economically. This allows customers to build cloud-native apps on OCI with support for standards-based Kubernetes, and high-performance computing customers building clusters in the cloud.
ORCL's total revenues increased 4.2% year-over-year to $10.51 billion in its fiscal 2022 third quarter, ended Feb.28, 2022. The company’s operating income improved marginally from its year-ago value to $4.81 billion.
Analysts expect ORCL's revenue for its fiscal 2022 fourth quarter, ending May 31, 2022, to come in at $11.69 billion, representing a 4.1% rise year-over-year. The company has an impressive earnings surprise history; it has surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of ORCL increased 14.7% in price over the past month and 13.2% over the past year. It closed yesterday's trading session at $84.07.
ORCL's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B grade, which equates to Buy in our proprietary rating system.
ORCL has a B grade for Value, Quality, and Stability. Within the Software - Application industry, it is ranked #24 of 160 stocks.
To see additional POWR Ratings (Momentum, Growth, and Sentiment) for ORCL, click here.
International Business Machines Corporation (IBM)
IBM is a leading American computer manufacturer that provides integrated solutions and services worldwide. The Armonk, N.Y., company operates through four business segments: Software; Consulting; Infrastructure; and Financing. IBM offers hybrid cloud platform and software solutions, data and artificial intelligence solutions, security software and services, technology consulting services, and financing services.
Last month, IBM announced new AIOps solutions with Flexera, an IT management software company, and IBM Turbonomic Application Resource Management (ARM) to automate software license compliance. These new solutions will allow businesses to automate the manual tasks of software license and resource optimization. This launch might boost the company’s profitability.
In February, IBM acquired Neudesic, a leading U.S. cloud services consultancy in the Microsoft Azure platform. This acquisition is expected to expand IBM’s portfolio by adding deep cloud and data expertise and advancing its hybrid cloud and AI strategy by expanding its cloud services technology, skills, and capabilities.
In its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, IBM's total revenue increased 6.5% year-over-year to $16.70 billion. Its income from continuing operations grew 106.9% year-over-year to $2.46 billion. The company’s net income and earnings per share of common stock from continuing operations came in at $2.33 billion and $2.72, respectively, registering a 72% and 106.1% increase from the prior-year period.
Analysts expect IBM's revenue for its fiscal year 2022, ending Dec. 31, 2022, to come in at $60.72 billion, representing a 5.9% rise year-over-year. The Street expects the company's EPS for the current year to be $10.02, representing a 26.4% increase year-over-year.
IBM stock has improved 3.7% in price over the past month and closed yesterday's trading session at $130.27.
IBM’s POWR Ratings reflect a strong outlook. The stock has an overall rating of B, which translates to Buy in our POWR Ratings system.
IBM has a grade of B for Quality and Value. It is ranked #18 of 81 stocks in the Technology - Services industry.
Click here to see IBM’s POWR Ratings for Growth, Stability, Sentiment, and Momentum.
Click here to check out our Software Industry Report for 2022
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MSFT shares were trading at $310.93 per share on Tuesday afternoon, down $4.04 (-1.28%). Year-to-date, MSFT has declined -7.36%, versus a -4.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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