I think that part of this is that certain stocks are "Wall Street Darlings"--stocks that nearly investor has heard of and wants a little of in their portfolio. Further, for people who want to diversify their portfolio, if the broker does not know anything else and wants to recommend a technology stock, it would be Microsoft.
For that reason, certain stocks seem to be trading above the range that is a reasonable expection for them. As long as they make no significant mistake, they will tend to continue to be valued above normal expectations. For these stocks, I personally add a certain percentage when evaluating such stocks. In the case of Microsoft, the number that I use is around 10%. Sybase used to be in this category until early 95. Oracle may not be moving into that category. However, just 6 months data cannot be used to make such a determination. More like 2 years data should be the minimum required.
This over-valuation also means that returns will be lower than might otherwise be expected.
The other reason for Microsoft's value is that it has a monopoly or near monopoly in more than 1 area. In operating systems, Microsoft has around a 90% unit market share (in other words, nearly 90% of all computers ship with some version of Windows on it) With Macintosh market share generally shrinking, and OS/2 and desktop Unix being virtually unmeasurable, there really is no competition. Even more, there is virtually no conceivable way to develop a new competitor that could displace Microsoft on computers that we recognize, without Microsoft having plenty of time to counter it.
While I do not know the actual amounts, this could be a $3B sales stream and growing--partly as more computers are sold, and partly as the price is increased (DOS to Windows 95 to NT Workstation).
You can also look to at other Microsoft near monopolies. In Office suites, Microsoft has a huge lead. The recent Corel numbers only look at the retail sales, and do not account for the huge company site licenses or number of sales pre-installed on Computers as part of the software bundle.
On the other hand, although Intel appears to have a near monopoly on the desktop, it is having to fight a war on two fronts, fighting both RISC manufacturers and the Intel clone makers (AMD, Cyrex, ...). It would not take too much of a slip to lose significant share to one or the other category. That is why there is less of a premium for Intel. There is just more risk potential. |
