I’ve been telling you for a while now that Microsoft Corp. (Nasdaq: MSFT) trades like a small-cap – the kind of action investors dream about.

Well, this “old guard” tech company recently soared like a small-cap again – jumping 10.5% on a single day, following a strong third-quarter earnings report on April 24.

[ad#Google Adsense 336×280-IA]While that’s huge jump in share price, it actually understates the significance of the stock’s rally.

On that day, this company added a stunning $36.6 billion in value to its shareholders.

Let me put that in perspective.

That one-day move was more than five times the entire market cap of hyper-growth media darling GoPro Inc. (Nasdaq: GPRO).

Wall Street was particularly impressed with this company’s continuing massive growth in the breakout field of cloud computing.

But that’s not all that’s going on.

There’s a second major factor at work – one that will continue to push this company’s shares even higher from here.

Let’s take a look at the company – and that “x factor”…

The Comeback Kid

Most recently, back on Feb. 3, 2015, I stood behind the company after Wall Street expressed disappointment in the firm’s fiscal second-quarter results.

I noted that I had seen nothing in the earnings release to change my basic thesis that Microsoft will succeed in its massive realignment and that its stock still faces enormous upside. Here’s what I said at the time:

“Investors overreacted to what was actually a pretty good earnings report – no surprise there. And Wall Streeters, who should know better, are missing a big part of the Microsoft story – this isn’t the same complacent, one-trick Windows/Office-rooted enterprise it was not too long ago.

“The tech giant has been quietly and steadily rebuilding, repositioning, and refocusing itself for success in a brand-new era through big investments – and rapidly increasing sales – in hot sectors like cloud computing.”

And just like I predicted, that rebound came April 24.

Consider that on April 2, when the stock entered its current uptrend, Microsoft stock closed at $40.29 a share with a market cap of $326.9 billion. By April 29, it had climbed 21.7% to close at $49.06, with a market cap of $396.9 billion.

That’s $70 billion in new shareholder value in just 19 sessions, or an additional $3.7 billion in market cap each trading day.

Double Catalyst

This huge rally gets down to two factors we have discussed about Microsoft in the past…
Its growth in cloud computing and that “x factor” I mentioned before: the quality of leadership of new CEO Satya Nadella.

The two go hand in hand, as Nadella has made Microsoft’s cloud business the revenue rocket behind his efforts to make his company a high-growth firm once again.

Cloud computing is the trend of vendors – like Microsoft, Salesforce.com Inc. (NYSE: CRM), and Amazon.com Inc. (Nasdaq: AMZN) – hosting data and software applications at remote data centers and then delivering them to clients via the Web.

This is a very profitable trend. Market Research Media forecasts annual compound growth of 30% through 2020, when the cloud sector will be worth some $270 billion.

Given the Redmond, Wash.-based company’s improvement in the field, it’s hard to believe that many on Wall Street were writing it off as a cloud loser just a few quarters ago. But in the third quarter, Microsoft reported that cloud sales more than doubled from the year-ago period to $1.5 billion.

That amazing growth is significant for another major reason. It means that Microsoft is now posting the kind of numbers once reserved for the globe’s biggest cloud provider, Amazon.com.

[Recently], Bloomberg Business reported that Microsoft is weighing a bid to buy Salesforce.com. Microsoft denied the report, but such an acquisition would boost its cloud service exponentially.

I think Amazon must be feeling the heat from Microsoft. In its most recent quarterly report, Amazon listed the size of its cloud sales for the first time ever. For the quarter ended March 30, Amazon Web Services said it had sales of $1.57 billion.

In other words, Microsoft is right on Amazon’s heels.

The New Boss

Ever since Nadella assumed Microsoft’s CEO post on Feb. 4, 2014, he has made the cloud a priority. And his actions have delivered for shareholders.

Over the past five years, Microsoft stock has gained 55.8%. But more than half that amount – 30% – has come in the 16 months Nadella has been on the job.

A native of India who loves watching cricket matches and reading poetry, Nadella joined Microsoft in 1992. He quickly established himself as a tech leader who’s also a management and finance whiz. And his ability to take a fresh look at the company and its place in the industry just may be the biggest factor in his success at Microsoft, where he is hugely popular with the workforce.

In turnaround situations, I generally look for a new leader from outside a company. However, Nadella has shown a willingness to challenge Microsoft orthodoxy.

For instance, back when he was running the sprawling division that includes cloud services, he allowed outside developers to use non-Microsoft programming languages, ones that are popular with younger coders.

He’s still taking an unconventional approach to shaking things up.

Just last week, Microsoft took the bold step of aligning itself with two of its archrivals – Google Inc. (Nasdaq: GOOG, GOOGL) and Apple Inc. (Nasdaq: AAPL).

Here’s why.

Most programmers prefer to write mobile apps for Google’s Android operating system or for Apple’s iOS. And that’s why apps like Snapchat and Uber are either unavailable on Windows-driven smartphones or are inferior to those on Android or iOS platforms.

So, Microsoft decided to open up the new version of its operating system, Windows 10, to those developers. Microsoft wants new apps to cover everything from its mobile devices to its Xbox gaming consoles.

Microsoft’s goal is for all of us to be using 1 billion Windows 10-powered mobile devices by the end of 2018. As Microsoft is starting from a negligible number of mobile devices – do you know many folks with Lumia phones? – we’re talking about the possibility for huge growth.

This cloud- and mobile-first strategy tells me that Microsoft is taking a page from Apple’s playbook.

The Apple Way

Rather than sell a collection of disparate tech products, Microsoft wants to create an Apple-style “ecosystem” in which products work together in a unified way.

With Nadella firmly in charge, Microsoft has quickly become a tech powerhouse that, for the first time in years, can give its rivals a run for their money.

If Microsoft can pull its “ecosystem” off – making itself a real competitor in the consumer tech space – then it could even start beating those rivals.

And that means you can still count on Microsoft as a foundational play for your high-tech portfolio.

So, now is the time to take advantage of Nadella’s growth initiatives – I’m fully confident they’ll propel the stock price a good deal higher from here… and maybe a lot higher.

Years from now, this is a stock you’ll be glad you picked up.

— Michael A. Robinson

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Source: Money Morning