The boom times for the US stock market could be over. Frighteningly, Warren Buffett is betting against the American stock market.
Berkshire Hathaway (BRK.B) sold $13.3 billion worth of US stocks in the first quarter of 2023, The Financial Times calculates. Instead of buying stocks, Berkshire spent $4.4 billion to repurchase its own shares. Berkshire Hathaway also moved $2.9 billion into cash equivalents. Its cash and short-term investments rose to $130.6 billion.
This is scary because historically, Buffett has been bullish on America. “America’s dynamism has made a huge contribution to whatever success Berkshire has achieved, a contribution Berkshire will always need,” Buffett writes in his 2023 shareholder letter.
“We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned,” Buffett admits. Uncharacteristically, Buffett is not counting on the American Tailwind to push the Berkshire ship forward.
Is Microsoft (MSFT) still making money?
I think Buffett thinks America is in decline, even though as a patriot he will never admit it. To elaborate, I believe Berkshire’s stock sales reveal a lack of faith in America.
If America is in decline. Investors need to ask what American companies are not declining. Interestingly, one answer to this question is Microsoft (NASDAQ: MSFT).
For instance, Microsoft’s revenues grew by 7.08% in the quarter ending on 31 March 2023. Microsoft’s quarterly revenues grew from $49.360 billion on 31 March 2022 to $52.857 billion on 31 March 2023.
Similarly, Microsoft’s quarterly gross profit grew from $33.745 billion on 31 March 2022 to $36.729 billion on 31 March 2023. Plus, Microsoft’s quarterly operating income grew from $20.364 billion on 31 March 2022 to $22.352 billion on 31 March 2023.
Microsoft (MSFT) Grows as America Declines
Microsoft (MSFT) is growing as America declines. For example, Microsoft’s total assets grew from $344.607 billion on 31 March 2022 to $380.088 billion on 31 March 2023.
Conversely, Microsoft’s cash and short-term investments shrank slightly from $104.693 billion on 31 March 2022 to $104.427 billion on 31 March 2023. Microsoft is growing, but it has less cash.
Notably, Microsoft’s quarterly operating cash flow fell from $25.386 billion on 31 March 2022 to $24.441 billion on 31 March 2023. Conversely, the quarterly ending cash flow grew from -$8.106 billion on 31 March 2022 to $10.916 billion on 31 March 2023.
Thus, Microsoft’s ability to generate cash is increasing. However, Microsoft is still paying off a lot of debt. For example, it reported a quarterly financing cash flow of -$10.29 billion on 31 March 2023. Conversely, the quarterly financing cash flow rose from -$17.345 billion on 31 March 2022.
However, Microsoft’s total debts fell from $49.926 billion on 31 March 2022 to $48.210 billion on 31 March 2023. Therefore, Microsoft has less debt in a period of decline in a time of decline which is smart.
Is Microsoft Growing?
Microsoft’s business displays dramatic growth. For example, Xbox Game Pass had 29 million users in October 2022, Sony Interactive Entertainment claims.
If Sony’s claims are true, the Xbox Game Pass gained four million new subscribers in the first three quarters of 2022. To elaborate, the Xbox Game Pass had 25 million subscribers in January 2022, Statista estimates.
History shows such Xbox Game Pass growth is probable. The number of Xbox Game Subscriptions grew from 18 million worldwide in January 2021 to 25 million in January 2022, Statista estimates.
This growth helps Microsoft (MSFT) make money because most Game Pass plans cost $9.99 a month. Moreover, the Xbox Game Pass Ultimate plan costs $14.99 a month.
For example, I calculate Microsoft could make $289.71 million a month from Xbox Game Pass subscriptions if all the subscribers pay $9.99 a month. I suspect the actual figure is higher because Xbox Game Pass Ultimate plans cost $14.99 a month.
Is Microsoft (MSFT) the new Berkshire Hathaway?
Xbox Game Pass growth can help Microsoft make more money because it is float.
Float is Buffett’s term for the cash flow regular payments such as subscriptions and insurance premiums generate. Notably, Buffett built Berkshire Hathaway (NYSE: BRK.A) with businesses such as insurance companies, utilities, and newspapers. All three businesses generate float.
Now Microsoft is a similar business strategy. For example, Microsoft is using float from Xbox and other subscriptions to accumulate an enormous pile of cash ($104.427 billion in cash and short-term investments).
Significantly, Microsoft is using the cash to make acquisitions as Berkshire does. For example, Microsoft is trying to buy video game giant Activision Blizzard (ACTVI). However, British and US authorities are trying to block the deal.
Similarly, Microsoft is investing up to $10 billion in OpenAI, Bloomberg reports. OpenAI builds popular artificial intelligence solutions such as ChatGPT, DALL-E2, and GPT-3. This money is part of a multi-year and multi-billion dollar investment by Microsoft, an OpenAI press release reveals.
Microsoft plans to add OpenAI’s tech to its Azure cloud computing platform. In particular, Microsoft is offering an Azure OpenAIService which could generate subscription income and float from OpenAI products.
Is Microsoft Better than Berkshire Hathaway?
Microsoft (MSFT) could be a better value investment than Berkshire Hathaway (BRK.B) for two reasons.
First, Microsoft’s share value is growing dramatically. Notably, Microsoft’s share price grew from $264.58 on 9 May 2022 to $310.11 on 11 May 2023. Secondly, Microsoft is an attractive dividend stock.
For example, Microsoft has scheduled nine 68₵ quarterly dividends between 6 June 2023 and 9 June June 2025. Consequently, Microsoft shares were delivering a $2.72 forward dividend and a 0.88% forward dividend yield on 11 May 2023.
I think Microsoft is an excellent dividend stock that could survive American decline. Hence, I recommend that all value investors investigate Microsoft.
