Forget Windows. The future of Microsoft (MSFT) is in its enterprise software business and the cloud, said Jeffrey Ubben, founder and CEO of activist hedge fund ValueAct Capital.
In fact, Ubben believes in Microsoft so much that he's taking a stake in the firm that's "within spitting distance" of $2 billion.
The news sent shares of Microsoft up nearly 5%.
"We see Microsoft's consumer strategy challenges and say who cares," said Ubben, speaking Monday at the Active-Passive Investor Summit in New York.
Microsoft has seen its Windows franchise take a big hit along with declining PC sales.
But Ubben sees growth opportunities.
Microsoft provides the plumbing that helps large and small businesses function, he explained. While many have derided Microsoft's inability to innovate, Ubben said that's not such a bad thing. "IT managers don't want constant change."
Microsoft should continue to capitalize on new enterprise businesses, such as instant messaging application Lync and web portal service SharePoint.
Those software applications are what Microsoft does right and should continue to do. "Microsoft is not good at consumer devices, but that's not the relevant lens to view the company," he said.
Microsoft's stock has been "left for dead," he said, mostly because of declining PC sales. "The valuation is stupid now."
Ubben wouldn't say whether he would seek to shake up Microsoft's management or board. He also wouldn't comment about CEO Steve Ballmer's performance. ValueAct typically works with corporate boards in private.
The changes Ubben is pushing for seem to be operational. Windows might have made Microsoft what it is today but it's not the future of the business he calls a "national treasure."
"Microsoft must consider strongly in the not too distant future making Office available outside Windows," he told attendees at the summit.
Microsoft stock could remain under pressure as investors consider the ramifications of Windows chief Steven Sinofsky's sudden departure from the company after more than 20 years of service.
Shares of Microsoft (MSFT) dropped more than 5% early Tuesday to $26.75, the lowest level since January. By the afternoon, the stock pared some of the losses, but was still down about 3%.
Sinofsky's exit came as a surprise, coming just two weeks after Microsoft's launch of MOREHibah Yousuf - Nov 13, 2012 1:19 PM ET
Nokia's stock plunged after the introduction of the company's two new smartphones, which run on the latest Windows 8 operating system, failed to woo investors.
The unveiling of Nokia's Lumia 920 and Lumia 820 smartphones lacked "positive surprises, carrier announcements or specific launch dates," noted Jennifer Fritzsche, senior analyst at Wells Fargo, calling the company's event Wednesday a "disappointment."
Ahead of the announcement, Fritzsche was expecting that Nokia (NOK) would announce AT&T MOREHibah Yousuf - Sep 5, 2012 2:43 PM ET
|Sears may sell Kenmore and Craftsman brands|
|Google's plan to kill passwords|
|'Captain America' twist stuns comic book world|
|Peter Thiel: Financing lawsuits against Gawker is about 'deterrence'|
|How young millionaires are growing their money|