For years now major tech companies have been in serious competition with each other, trying to outgrow one another with product improvements and technological advancements. Every company has a different way to create growth — for example, Alphabet Inc’s (NASDAQ:$GOOG, NASDAQ:$GOOGL) aims to grow with its continued work on the internet, cloud computing, and smartphones. Long-time tech giant Microsoft Corporation (NASDAQ:$MSFT) has established what is called three bold ambitions to help create growth.

Microsoft’s first bold ambition is to create more personal computing on a global level. This is fairly reasonable, as the company continues to hold dominance in personal computing software — such as the Windows operating systems and Office suite — decades after their establishment. With the combination of the Windows software and Intel Corporation (NASDAQ:$INTC) PC chip — known as the “Wintel” franchise — and Office 365 now being offered in the cloud, it looks like Microsoft is on its way to fulfilling its first bold ambition.

The company’s second ambition is the reinvention of its productivity and business process. This ambition goes hand in hand with its third ambition: building intelligent cloud platforms. Its cloud platform Azure is combined with a business model that provides training and certificates for professionals who wish to get into this relatively new way of storing information. The Azure initiative is now a direct competition with Google’s related platforms, as well as other initiatives pursued by Amazon.com, Inc. (NASDAQ:$AMZN), Accenture, and International Business Machines Corp. (NYSE:$IBM).

Besides these three ambitions, Microsoft is also gaining some traction in the gaming industry with its Xbox gaming system that was incredibly well-received amongst gamers. This isn’t a bad industry to take over as a replacement for developing software that drives smartphones.

Microsoft Stock by the Numbers

With its recent report of the company’s third-quarter results, investors were given a bit of insight on how well Microsoft is succeeding in regards to its three ambitions. Overall, sales went up, rising 8% to $22.1 billion; however, growth wasn’t as strong as one had hoped when the purchase of LinkedIn remains unaccounted — the purchase alone gave a $975 million boost out of $1.6 billion on the top line. Still, the sales progress of Microsoft was impressive, given the numbers. As well, management projects that only about a 1% hit to full-year earnings, thanks to the purchase of LinkedIn.

Three main segments were reported in its third-quarter results: Intelligent Cloud (IC), Azure cloud, and More Personal Computing (MPC).

The IC unit resulted in the strongest growth: 11% of its earnings accounted for almost 31% of total sales. Meanwhile, Azure cloud computing sales increased greatly by 95%, putting this segment well on its way to taking over the IC unit when it comes to leading overall growth. The Azure cloud plays a large part in the enthusiasm seen in the Microsoft stock.

While both IC and Azure cloud saw success, sales fell 7% to 40% of total sales when it came to MPC. In particular, the sales of Microsoft’s tablet Surface fell 26%. However, this seems typical amongst tech companies — even sales of Apple’s iPad haven’t been doing well. Weak tablet sales seem to be largely due to the success of smartphone sales. While the sale of Surface is a concern, it won’t be detrimental in Microsoft’s overall context of a diversified sales and product base.

Total company operating income grew 6% to hit $5.6 billion, however, the hit by merger-related costs as well as expenses were related to LinkedIn. While MPC’s sales were weak, its profit growth rose 20% to $2.1 billion.

Bottom Line for Microsoft Stock

The question now for investors to ask when considering Microsoft’s stock is if growth potential reflects its valuation. With earnings expectations, some would say there could at least be a slight mismatch — right now, there is a 24x forward earnings expectations in Microsoft.

There is no questioning Microsoft’s financial abilities — the company’s operating margin is a definite reflection of the company’s strength in software scalability and development. Keep in mind that before Alphabet (Google) (NASDAQ:$GOOGL) and Facebook Inc (NASDAQ:$FB) were even a thought, Microsoft had one of the largest installed client bases in the world. On its balance sheet, the company boasts an impressive $126 billion — however the company also has $76.2 billion in debt, a number that nearly doubled after the purchase of LinkedIn.

Considering current valuation of Microsoft’s stock, some investors may be leaning more towards Alphabet (29x forward earnings expectations) or Facebook (31x forward earnings expectations). Even IBM, with only 11x forward earnings estimates, could be a safer investment. The reasoning for this is because IBM’s stock trades at less than half of Microsoft’s earnings multiple, leaving lots of downside protection for investors. As well, IBM has a dividend yield of 3.74%.

Thus, Microsoft’s lofty valuation — where major sales or earnings drop is not expected — can cause its stock to plummet if anything negative were to suddenly happen. Given this unpredictability, perhaps an investment in other big tech companies could be safer.

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