The stock market thinks Microsoft has just under 4 years left

I also point out that the market tends to take its projections of near term events much more seriously than more distant ones. Nobody really thinks that Microsoft will disappear quickly. But they are going to be losing major revenue streams in the fairly near future.

Google's going after the Office cash cow right now. For low end users they have a compelling argument. High end users won't switch, but to threaten the revenue you just have to lose most people.

For another threat, the first video at http://37signals.com/svn/posts/2380-you-couldnt-pay-me-to-wo... points out that Steve Jobs thinks that the PC in its current form has a fairly limited time horizon until people switch away from it in large numbers. That would kill Microsoft's operating system margins. Watch the video to see how unprepared Steve Ballmer is to deal with this threat.

If the market thought Apple would make 50B a year every year until the heat death of the universe, it would still discount that future revenue to a finite and small value. In fact saying they'll make 50B a year forever and ever amen, combined with exponential depreciation, still means it gets discounted to a finite and relatively small value.

Don't literally read the 10 years; it basically translates into "The market thinks Google and Apple have extremely bright, shining futures." 4 years is also not necessarily literal; for one thing I doubt either individually or collectively people are saying that Microsoft won't exist in literally four years. What it means is that the market thinks they are OK now but are in for decline; combine decline with future discounting and they get a smaller future-earnings value.

You have to consider everything here through the prism of future discounting.

Future discounting is pretty fundamental. This is an interesting way to look at things when understood properly; there's nothing intrinsically wrong with collapsing statistics like this because it's the only way for human brains to get a grip on stuff like this. The full totality of detail is too much.

I understood the author to be saying that the market doesn't have the ability to predict out beyond 10 years. The ~10 year prediction for AAPL and GOOG is less of an indication that those 2 companies will fall off a cliff in 10 and more of an indication that in that timeframe the businesses/economic environment could change, or maybe that they're discounting future cashflows very heavily in an uncertain rate environment.

On the contrary, < 4 years for MSFT is potentially within the ability of the market to predict and more likely an indication that the market actually believes that MSFT on its current trajectory won't hack it.

A lot of people might agree that trends in open source software, distributing computing away from home PCs to cloud applications, and their inability to compete effectively for search or hardware makes their CURRENT business a dying one.

On the other hand, MSFT has smart people and money and I wouldn't doubt their ability to reinvent themselves and start competing in new markets.

I partially agree.

The thing is that under Jobs, Apple has really just been a consumer electronics company with a nice OS under its umbrella.

Apple tried to buy its way into Hollywood, and failed (losing badly to Linux because the visual effects folks couldn't sacrifice that much performance), and then tried to bribe its way into high-performance computing (Big Mac -- which turned out to be essentially unusable).

So the gradual de-emphasis on computers...

But the cloud? I highly doubt that Apple has an understanding of that.

I think however that Apple, Google AND Microsoft have all seen the writing on the wall... the iPad's initial success (I say initial only because it's new, not intending to imply anything else) didn't change anything, it just highlighted the writing that was already on the wall in Technicolor.

I bet even Ballmer figured that one out, because not only was it pretty hard to miss, but now we have Apple hopping on board with MICROSOFT's cloud (Bing) to face down Google.

This was my thoughts.

I don't think Microsoft is going to have a renaissance and overtake Google or Apple in the future, but I think the stock is under-priced relative to Google or Apple (or GOOG/AAPL are overpriced in comparison).

Apple, more than Google, is being purchased like its gold. Like its the safest asset on the equity exchanges. There are good reasons for this, but it has over inflated the value of the stock.

MS doesn't do the cloud right yet, which is a something they are working to rectify. With that said: I dont think the future is 100% cloud based, and Windows products are going to be on the majority of non-cloud hardware implementations. Who knows how big the slice will be when the cloud goes mature, but it will be there, and MS will dominate it.

False. I'm not sure why this post is catching as much flak as it did so quickly, but you don't seem to have read the post in its entirety.

From the 3rd paragraph: "Microsoft's market cap is 221 B, their book value is 46 B, and therefore 175 B of their market cap is projected future earnings. Their current profit is 46.28 B/year, and that works out to the market valuing them at their current earnings stream projected over a bit under 4 years."

As a finance professional I think its actually a fairly reasoned comment. Its not enough to make big decisions with, but investing is frequently about taking little scraps of information to formulate an opinion.

In this case, it portrays and interesting difference between companies that compete in similar spaces and I think the qualitative finding roughly corroborates most people's views about the future of MSFT's business based on their current execution quality.