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Microsoft, Telus play to AI strengths

Technology companies have recovered from their February selloff as demand for their products and services remains strong even as the pandemic is easing.  

Here are two updates. Microsoft is a leader in many areas of cloud computing and artificial intelligence. Telus is using its wireless telecom expertise to develop new businesses in data management, including healthcare and agriculture. 

Microsoft (NDQ: MSFT)   $286.44   (All figures in US dollars.)

Background: Microsoft is the world’s largest software company best known for its Windows operating system, which runs about 90% of the world’s personal computers. Microsoft also owns LinkedIn, Skype, and markets the Xbox gaming system.

It continues to benefit from its strategic shift to cloud computing which offers companies a way to store and access information remotely. 

Performance:  The shares have outperformed the broader market over the past year as the pandemic played to its strengths. The stock is up 28.8% year-to-date and 37.8% in the past 12 months.

Developments & Discussion:  Microsoft’s latest quarter was a record. Sales of $46.2 billion in the three months ending June 30 were 21% higher than a year earlier. Profits rose 47% to $16.5 billion. 

The catalysts were the pandemic which accelerated the cloud computing trend as more people worked from home. A rebounding economy has companies raising spending in areas where Microsoft has strengths. Many of its products are now annual subscriptions which is producing recurring revenue.  

Microsoft  continues to expand its footprint with strategic acquisitions in healthcare, artificial intelligence and cybersecurity. In April, it agreed to buy AI speech recognition firm Nuance Communications Inc. for $16 billion. In July, it paid more than $500 million for security software firm RiskIQ Inc. It made three major acquisitions in 2020.

 Dividend: The dividend was increased 10% in December to $0.56 per quarterly. It  yields 0.77% at current prices. 

Telus  (TSX: T) $28.41

Background: Telus Corp. is Canada’s second largest wireless telecom company after Rogers Communications Inc. Its core business includes internet and mobile phone service though the Telus and Koodo brands. It is using its data services expertise to grow businesses in healthcare and agriculture with an eye to spinning them off as stand-alone companies.

Performance: The shares are up 12.5% year-to-date and 20.6% in the past 12 months at the time of writing.

Discussion & developments:  In February, Telus undertook the largest technology initial public offering in TSX history, spinning off Telus International Inc., (NYSE:TIXT) in a $1.36 billion offering. Telus International helps companies including Fitbit, Uber and online gamer Zynga moderate their online content.

In May, Telus  reported first-quarter revenue and subscriber figures that were stronger than expected. Revenue was up nearly 9%, while profit fell 5.7% hurt by the pandemic.

At the end of June, Telus became the first Canadian company to issue sustainability-linked bonds, issuing  $750-million of the bonds. They pay a low interest rate if Telus cuts greenhouse gas emissions, but a much higher rate if it misses its targets.

Discussion & Outlook: Telus is more than a telecom company and has taken on an entrepreneurial flavour with Telus International offering a model for future spinoffs. The shares were issued at US $25 and closed at $30.97 (Tues) this week for a gain of 23.8%.

Telus Health is being groomed for a similar spinoff.  It helps doctors, dentists and clinics manage their offices through software that keeps records, manages billing and schedules appointments. In the latest quarter revenue rose 10% to $123 million at the unit. 

Dividend: Telus raised its dividend with the July payment to $0.3162 per share an 8.6% increase. It yields 4.58% at current prices.

This is an edited version of article that appeared in the Internet Wealth Builder on August 16, 2021.  For information on how to reprint this article please view this page.

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