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How Microsoft Can Gain from Higher R&D Investments

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How Microsoft benefits from R&D

Microsoft (MSFT) invests heavily in research and development (or R&D). Because the technology market is dynamic in nature, it must utilize its R&D advances to stay competitive.

Microsoft’s investment in R&D helped the company launch products such as HoloLens, which targets the mixed reality space. The Surface device counters its competition in the tablet and mobile device space, and Xbox One X compete against Sony’s (SNE) PS4.

Microsoft is investing heavily in quantum computing, and it’s planning to embed the Quantum simulator in its Azure platform.

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Rising R&D expense curve

From the graph above, we can see Microsoft’s increasing R&D growth in the last five years. In the same period, its R&D expenses grew at a CAGR (compound annual growth rate) of 5.7%. At the end of fiscal 2017, Microsoft’s R&D expenses stood at $13 billion, up 8.3% year-over-year. In the last five years, Microsoft spent ~$58.8 billion in R&D at an average of nearly $11.8 billion per year.

Among Microsoft’s peers, IBM is also spending heavily on R&D. IBM has invested ~$27.8 billion in the last five years. This investment is paying off for IBM (IBM), which has released products such as IBM Blockchain and Watson AI.

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