The same complaints against Microsoft during its supposed lost decade can easily be made about many other technology stocks. The technology bubble was not a consequence of underlying businesses failing to perform at a satisfactory level; rather, it was a consequence of mass investor delusion.
Consider the case of fellow tech stock Intel Corporation (NASDAQ:INTC) . The stock traded north of $73 per share in the fall of 2000 before falling to the low $20s — exactly where it stands today. Even using Intel’s most profitable year between 1991 and 2003, investors were paying more than 48 times those earnings at a price of $73 per share.
Meanwhile, Intel Corporation (NASDAQ:INTC)’s underlying business, like Microsoft’s, was quite successful during this time. Intel generated $26 billion in revenue in 2001. Last year, Intel did more than $53 billion in revenue. That’s more than double the level generated before the tech bubble burst.
As a result, it’s plain to see that it wasn’t Ballmer, or Intel Corporation (NASDAQ:INTC)’s own CEO, that were at fault for the post-tech bubble malaise. The fault lies solely with investors who turned a blind eye to valuation and bought mature companies for multiples far beyond reasonable levels.
A better decade to come
Investors who buy either Microsoft or Intel today are putting themselves in much better positions than those who bought in 2000.
Valuations are much more reasonable, and these two technology stocks now pay billions in dividends to their shareholders.
For investors, buying Microsoft today at 13 times earnings with a 3% dividend, and Intel at 12 times earnings and a 4% dividend, is a much better risk-reward proposition than paying 40 times earnings with no yield.
My perspective is that it’s likely that Microsoft’s next CEO will be unfairly credited with steering the company through a prosperous decade for the stock, just as Steve Ballmer was unfairly blamed for Microsoft’s languishing share price during his term.
Technology stocks such as Microsoft and Intel are not the speculative bets they were during the days of the tech bubble. Rather, they are massively profitable businesses that handsomely reward shareholders and trade for reasonable valuations. As a result, new investors will very likely have a richly rewarding decade ahead of them.
The article As Steve Ballmer Exits Microsoft, Should Investors Really Rejoice? originally appeared on Fool.com is written by Robert Ciura.
Robert Ciura owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Microsoft.
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