Commodity Investing

There’s Nothing Crude About This Investment

Fun fact: The U.S. ended 2018 as the world’s top crude oil producer, shipping 11.99 million barrels per day (bpd) to surpass Russia and Saudi Arabia.

Oil Production per Day

But this production growth hasn’t come without environmental costs. There were two major oil spills in the U.S. last year. And who can forget the 2017 Keystone XL pipeline fiasco in South Dakota?

Now one of the world’s largest tech companies is helping the world’s largest publicly traded oil and gas company “clean up” its act, spelling good news for shareholders.

Microsoft (Nasdaq: MSFT) and Exxon Mobil (NYSE: XOM) announced a groundbreaking pact recently. Microsoft will use its Azure cloud computing product to collect data from Exxon’s wells in the Permian Basin, the nation’s largest shale field.

Exxon says the deal equates to the largest deployment of cloud technology in the oil space to date.

Microsoft’s cloud data, mobile apps and artificial intelligence (AI) algorithms will help Exxon detect leaks earlier, reduce repair times, make faster drilling decisions and monitor greenhouse gas emissions. They will also help Exxon meet its 2019 Permian production goal of 600,000 bpd (a massive 216% increase from its production of 190,000 bpd last year).

Microsoft now controls 17% of the cloud market and is set to leap higher. Its flagship cloud product, Azure, saw a 76% sales increase last year. And Microsoft’s cloud revenue is even beating Amazon’s!

Cloud Segmnet Revenue

Sure, the company is competing with Apple and Amazon. But Microsoft doesn’t need to take away market share from Amazon, it just needs to take it from smaller players.

With 2019 U.S. oil demand expected to increase by 330,000 bpd to 20.8 million bpd, Microsoft and Exxon are positioned for a profitable year.

The deal with Exxon gives Microsoft a platform to expand its cloud and AI technologies, while proving it’s innovating now more than ever.

With Amazon trading at 84 times earnings, Microsoft is a comparative bargain, trading at just 26 times earnings. This makes Microsoft a cheaper play in the cloud services industry and proves you can still find high-quality stocks at a fair price in this market.*

This is clearly a core tech stock for investors looking to play amongst the clouds.

Good investing,


*Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of Wall Street analysts.

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