There is a quiet shift happening in the tablet market. Since it is peaking at 77 percent in the market share in mobile, Apple (AAPL) is slowly losing more and more. In Q3/2015, Apple’s iOS market share fell to 66 percent due to falling demand for the iPad. Microsoft’s (MSFT) not there yet, but “Surface” is gaining momentum.

For the first time ever, Microsoft has a solution across all platforms, from mobile to desktop to the cloud. In the mobile space, Microsoft has an impressive lineup: the Surface Pro 4, Surface Book to Lumia 950, 950 XL. It even has wearable solutions, which include the Microsoft Band 2 and HoloLens developer edition. The big shift comes with the Surface tablet. Since interest peaked on September 30, Microsoft’s stock price is responding positively:

Source: TickerTags

The market clearly anticipates that despite lower revenue in Q1/2016, sales for Surface will improve this holiday. Management also expects the same thing will happen. On its conference call, the company explained the revenue drop for mobile devices.

It said:

Surface revenue slowed with the market anticipation of a new Surface Pro device for the holidays. Surface continues to gain ground with businesses and schools, creating opportunities for our rapidly growing partner channel which includes Accenture, Dell and HP. Both the number and size of deals in our commercial segment for Surface have increased double digits year on year.

Microsoft is confident that profitability will improve for devices, helped by Surface Pro and SurfaceBook:

And with the strong holiday Surface lineup, we expect revenue to grow in Q2. Gross margins will reflect the mix of device life cycles between Surface 3, Surface Pro 3 and a growing mix of Surface Book and Surface Pro 4.

What this all means:

Microsoft’s stock is at a yearly high, but it is unable to break above $55. This holiday, sales for Microsoft-based devices will impress. By 2016, the stock should respond favorably. This makes the company’s stock price look reasonable, even at a P/E of 36 times.