Investors seem to think Satya Nadella’s transformation is working.

Microsoft’s stock price reached an all-time high today, beating a previous record set in 1999 (!) in the heat of the dot-com bubble. Shares opened this morning at $60.31 — up 5 percent from yesterday’s close — and reached $60.45 in morning trading before settling.

Why is Microsoft setting share-price records in 2016?

Most importantly, investors seem to think its transformation under CEO Satya Nadella — from a company that sells Windows and Office licenses (often on discs and in cardboard boxes) to a company that sells access to software and services in the cloud — is working.

Or, put another way, Microsoft hasn’t collapsed, despite several radical shifts in the computing industry that it pioneered and dominated for about two decades.

Microsoft reported its first-quarter earnings yesterday — thus today’s stock pop — which contained several bits of supporting news:

• Its cloud businesses are growing. Azure, its cloud-computing business most comparable to the market-leading Amazon Web Services, grew 116 percent year over year, with “compute usage” more than doubling. That’s an acceleration over the prior quarter, when Azure sales grew 102 percent year over year.
• Office is morphing into a subscription service with recurring revenue. Or: Google Docs has not made Office obsolete. Office 365, Microsoft’s business selling Office as a subscription, grew its commercial (selling to companies) revenue 51 percent year over year. Office 365 also has 24 million consumer subscribers — more than a quarter of the number of subscribers Netflix has.
• Microsoft is still huge. Overall, the company still generates a large amount of revenue and profit. It made almost $5 billion in profit on about $20.5 billion in sales last quarter.

That’s not to say everything is perfect.

• Flat is flat. For all the excitement, and a roughly 25 percent rise in the stock price since late June, Microsoft’s Q1 sales still grew a total of $74 million — only 0.4 percent — year over year. (Microsoft said currency fluctuations had a 5 percent negative impact. Still, single-digit growth.)
• There’s no guarantee that its cloud- and subscription-based businesses will ever become nearly as large, as profitable, or as dominant as Windows and Office in their heyday. And Microsoft’s financial reporting segments make it tricky to see what’s working and what isn’t. For example, the company doesn’t specifically break out Azure’s financials, just its growth rate.
• The traditional PC industry, which still drives much of Microsoft’s business, is in long-term decline. Mobile was a miss for Microsoft. What’s next?
• Google is putting more effort into its cloud services for businesses — not retreating. So is Facebook. And Slack. And Salesforce.

And Nadella is about to embark on a big, curious bet. The company still expects its $26 billion deal for LinkedIn to close this year.

Note: You can better understand Google’s new cloud play, Slack’s rise as a platform and Microsoft’s LinkedIn move by attending our next Recode conference in San Francisco on Nov. 14-15. There, we’ll interview Google’s cloud boss Diane Greene; Slack’s April Underwood and Noah Weiss; and LinkedIn CEO Jeff Weiner. Click here to learn more and register.

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