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Chicago, IL – August 11, 2022 – Today’s Zacks Investment Ideas feature highlights Microsoft MSFT, Alphabet GOOGL and Advanced Micro Devices AMD.
3 Tech Titans with big acquisitions in 2022
Market performance lately has been stellar. After a difficult first half to start 2022, investors fully appreciated the rally.
While the majority of headlines throughout the year were negative, there were also many positive ones, such as acquisition news.
Interestingly enough, a few of these announcements have come from titans of the tech space, such as Microsoft, Alphabet, and Advanced Micro Devices.
Below is a chart illustrating the year-to-date stock performance of the three companies while incorporating the S&P 500 as a benchmark.
Companies aim to drive growth and increase size through acquisitions. Bigger is better, because small businesses don’t have the cost-saving advantages that larger companies have.
Let’s dig a little deeper into acquiring each company and look at the expected benefits.
Alphabet, the parent company of Google, is one of the most innovative technology companies in the world, with its Google Cloud platform enjoying significant success. Business is so deeply embedded in the web that it seems impossible to imagine the internet without it.
Earlier this year, Alphabet announced plans to acquire Mandiant in a deal valued at $5.4 billion, or $23 per share. Mandiant is a dynamic provider of cyber defense and response solutions, using its Mandiant Advantage software as a cloud-based service platform.
The acquisition should complement Google Cloud’s security strengths. GOOGL plans to enhance its security offerings with this agreement, providing an end-to-end security operations suite with more capabilities to help its cloud customers.
Google Cloud has grown by leaps and bounds – since 2018, Google Cloud’s revenue has soared 231%.
Alphabet is known to generate immense revenue, and that is precisely what the projections are hinting at; for the company’s current fiscal year, revenue is expected to be $237 billion, a solid 12% year-over-year increase.
Microsoft, another tech titan in the space, has been an incredible investment over the past five years. Lately, the company’s games segment has proven to be a strong contributor to its revenue, and Microsoft wants to capitalize.
In an effort to bolster its position in the gaming industry, Microsoft has revealed plans to buy Activision Blizzard for a whopping $68.7 billion.
Activision Blizzard is a leading developer of video games and publisher of interactive entertainment content, well known for titles such as Call of Duty and World of Warcraft.
Microsoft’s Xbox Game Pass subscriber count has surpassed 25 million, and Activision Blizzard titles currently have approximately 400 million monthly active players, providing a significant source of recurring and persistent revenue.
Since 2018, Microsoft games revenue has increased by 57%.
In addition, the company’s net income is in excellent health; for MSFT’s current fiscal year (FY23), Zacks’ consensus EPS estimate sits at $10.14, which is enough for a 10% year-over-year upside.
Advanced Micro Devices is a semiconductor titan and an investor favorite. The company’s extensive product portfolio includes microprocessors, graphics processors, motherboard chipsets and personal computers.
AMD announced its acquisition of Pensando, a company with a leading distributed services platform, in a deal valued at $1.9 billion. With AMD looking to bolster its data center solution capabilities, this seems like a perfect match.
Pensando claims that its Programmable Packet Processor delivers up to 13 times the performance of similar competitors’ products. Its processor controls how workloads move through the hardware infrastructure, bouncing tasks back to the processor whenever possible, dramatically increasing efficiency.
AMD’s growth prospects are excellent. Profits are expected to climb 56% in FY22, and the company’s revenue is expected to grow 55%.
Although the majority of market news was unfavorable throughout the year, there were some announcements worth celebrating, such as the acquisitions of the three companies above.
Acquisitions allow companies to get their hands on more expertise and technology, giving them the flexibility to continuously innovate. After all, if companies don’t adapt, the consequences could be serious.
In addition, acquisitions are generally a sign of good financial health. Growth is the name of the game, and these three companies are just playing along.
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