Enterprise software juggernaut Microsoft (MSFT), like most tech stocks, had started September on the wrong foot. But Microsoft stock reversed bullishly, gaining more than 3% for the month. And in recent weeks, the megacap tech slowly regained more of its long-running mojo ahead of its fiscal first-quarter results.
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However, investors got a Halloween scare.
After hours Wednesday, Microsoft stock rose to as high as 444.95. But shares later sank as much as 5% below the regular-session close of 432.53 on fiscal first-quarter results. On Thursday, shares tanked 6% lower and dipped to as low as 406.30. Volume soared to 53.9 million shares, the second busiest day for Microsoft this year so far. MSFT is now down 5% for the week, all but guaranteed to snap a three-week win streak.
MSFT also dropped 5.6% for the month of October, gutting September’s gain and then some.
The Nasdaq 100, meanwhile, has fallen 2.3% for the week and is challenging the rising 10-week moving average. The index, which tracks the Nasdaq’s 100 largest nonfinancial components, had been aiming at an eighth straight gain.
Microsoft Stock Sours On Q1 Numbers
After the close on Wednesday, the member of the Magnificent Seven megacap growth stocks reported earnings in the September-ended quarter of $3.30 a share, up 10% vs. a year earlier and 20 cents above the FactSet consensus view. Sales hit $65.6 billion, rising 16% and surpassing every analyst’s forecast tracked by Yahoo Finance.
Revenue in its server products and cloud computing services businesses jumped 23% vs. a year ago. That’s definitely healthy. Meanwhile, revenue in its intelligent cloud unit rose 20% to $24.1 billion. The Microsoft 365 commercial products unit saw 13% revenue growth; sales in the 365 consumer products area increased 5%.
Please read this tech story for more details on the quarterly report.
Before the earnings shock, the stock had quietly treaded water amid a general decline in daily turnover. The dull action came despite news that the Redmond, Wash., tech giant plans to launch autonomous AI (artificial intelligence) agents that could help workers perform and support tasks in the fields of sales, finance, supply chain management and other areas of business operations.
In fact, the last time shares in Microsoft stock vigorously exchanged hands came on Sept. 20, or the triple-witching session in which weekly and monthly stock and index options expired.
A New Rebound In Store?
However, on Oct. 22, MSFT rallied 2.1% to 427.51 and notched a session high of 429.42. Volume ran up to 25 million shares, a 41% faster pace than usual. In contrast, the Nasdaq composite struggled to stay above water, while the S&P 500 fell 0.3%.
That healthy gain in big turnover suggested strong institutional investor demand. Also, Jefferies analyst Brent Thill told CNBC during an afternoon show that he sees Microsoft, as a cloud computing titan, as among the best plays currently in the theme of artificial intelligence investing.
On Tuesday this week, shares again outperformed the stock market today, rising 1.3% vs. a nearly 0.3% gain by the S&P 500 in afternoon movement. The Economist reported that Microsoft accused Google operator Alphabet of running “shadow campaigns” against the company’s European cloud computing business. In September, Google filed an antitrust complaint against Microsoft to the European Commission. Microsoft stock rose more than 0.6% in Wednesday afternoon trading ahead of quarterly results due after the regular session close.
Microsoft Stock Today
Microsoft stock had risen nicely above a key technical level, the 50-day moving average. Plus, the 50-day line is starting to rise again, a promising sign. But that bullish chart action got obliterated on Thursday.
Indeed, shares are not yet ready for a new breakout and a big run to all-time highs, which would make every investor owning Microsoft stock happy. But clearly a new set-up has emerged. Currently trading near 434, the Redmond, Wash., firm now trades 7% off its peak of 468.35.
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So, is Microsoft stock, affectionately nicknamed by some investors as Mr. Softy, a buy now? Or, is it a sell?
This story examines the fundamental, technical and institutional sponsorship metrics of the Redmond, Wash., firm and whether it makes sense right now for individual investors to deploy their capital.
Long-Term Leader
The member of IBD’s Long-Term Leaders resides inside the pantheon of the greatest stock market winners in U.S. history. Not long after its IPO in March 1986, MSFT demonstrated true leadership on an initial breakout from a four-month base. Microsoft stock has shown leadership — and enriched investors by rising to new highs — in multiple bull markets since then.
Without question, the company has done a spectacular job of not only maintaining a high level of reliability and trust in its brand. Management has found new markets and industries in which to grow at a rapid clip. Company financials back up the story.
Microsoft stock has rallied as much as 24.5% since Jan. 1. It began the year at 376.04. However, Microsoft’s relative strength line has continued to fall, meaning it’s underperformed the S&P 500.
You’d prefer to see a stock’s RS line to rise, not fall. The very best stocks are able to rise more quickly during a confirmed market uptrend.
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June Fiscal Q4 Results
On July 30, the company reported earnings in the June-ended fiscal fourth quarter of $2.95 a share, up 10% vs. a year ago and a penny above the FactSet forecast. Revenue grew 15% to $64.7 billion, $300 million above views.
The company’s Azure and related cloud services sales jumped a healthy 29% to $28.5 billion. However, that missed the Visible Alpha consensus estimate of $28.7 billion. Devices revenue dropped 11%. LinkedIn revenue grew 10% while Xbox content and services rose 61%. Productivity and business process revenue came in at $20.3 billion. Microsoft chalked up $13.22 billion in product revenue and $15.9 billion in the area of personal computing.
Please read this IBD tech story for more color on analysts’ reactions.
Following a global data fiasco rendered by a Windows-related software update failure at CrowdStrike (CRWD), Microsoft stock slumped to the 200-day line, a key long-term technical level of support and resistance.
Nonetheless, Microsoft serves as a principal investment choice in the themes of artificial intelligence, enterprise software, digital hardware and cloud computing. It has gained 860% since the end of July 2014. The S&P 500 has rallied 189%.
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Big Earnings Boost Microsoft Stock
In fiscal 2018, Microsoft scored a profit of $3.88 a share. Six years later, profit totaled $11.80 a share, up 204% over that time frame. Over the past four quarters, Microsoft’s earnings per share on average rose 23.5% vs. year-ago levels. Simply incredible for a company with trailing 12-month sales topping $245 billion.
Sales have moved at a slower clip than earnings. But growth has remained steady, up 8%, 13%, 18% and 17% in the past four quarters ahead of Wednesday’s news. Gross margin edged back above 70% in the March-ended fiscal third quarter.
No wonder IBD Stock Checkup recently gave MSFT an Earnings Per Share Rating of 93. After Wednesday’s report, the EPS score dipped to 90.
In fiscal 2023, the company posted an impressive 37% return on equity (ROE), a measure of profit-generating efficiency. Its long-term debt to shareholders equity was reasonably low at 20%. Big stock market winners, such as Microsoft stock, tend to post high ROEs before they stage big price runs. Hence, MSFT also gets a top-drawer A grade for IBD’s SMR Rating (Sales + Margins + ROE).
Please see this Investor’s Corner for more on the SMR Rating.
Microsoft’s IBD Composite Rating fell hard on Thursday to a subpar 70. In general, the biggest stock market winners tend to show a Composite of 95 or higher at the start of their mighty runs.
The Relative Strength Rating for Microsoft stock also nose-dived on Thursday. At 45, it plunged 17 points and needs to improve. Back in August, the RS Rating stood at 83. A solid weekly gain could boost Microsoft’s RS score again.
A 45 RS Rating means Microsoft stock has outperformed 45% of all companies over the past 12 months. Highly unacceptable. In fact, the average Relative Strength Rating among the biggest stock market winners in recent decades when they began their gigantic price runs is 87, according to IBD research.
This means numerous big winner break out to new highs and produce big profits for investors willing to make a timely buy when their Relative Strength Rating is already strong, say at 95 or higher.
The 3-month RS Rating has ramped up to a 69 vs. 58 in recent days.
MSFT Stock: Nadella’s Take
The company has invested billions of dollars in OpenAI for its ChatGPT AI platform. “This next generation of AI will reshape every software category and every business, including our own,” CEO Satya Nadella stated in the company’s 2023 annual report. “Forty-eight years after its founding, Microsoft remains a consequential company because time and time again — from PC/Server, to Web/Internet, to Cloud/Mobile — we have adapted to technological paradigm shifts.”
Amid a new funding round for OpenAI, according to news reports, the company is now valued at $157 billion. On Thursday, OpenAI reportedly a launched a new web browser to compete in the internet search market.
On Sept. 17, shares rallied as much as 3% and hit a two-month high of 441.85 on news that the company is boosting its share buyback plan by up to $60 billion. That’s roughly 1.8% of the company’s stock market value of $3.23 trillion. A day later on Sept. 18, Microsoft announced it is teaming up with money management titan BlackRock (BLK) and MGX, a venture fund based in Abu Dhabi, UAE, to invest up to $30 billion in AI infrastructure, including datacenters and energy generation.
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Microsoft Stock And Institutional Activity
Microsoft stock has 7.433 billion shares outstanding. One of the few companies in the trillion-dollar club, its total market value recently exceeded $3.4 trillion.
Mutual funds, hedge funds, insurers, pension plans, sovereign wealth funds and the like dominate the long-term movement of share prices. MSFT stock is no exception. In the third quarter of 2023, as many as 10,119 mutual funds held MSFT stock, based on MarketSurge data. That number has since grown to as high as 10,509 funds as the end of the June quarter. In Q3, the figure eased to 10,362.
To determine the right time to buy MSFT stock, always consult a stock chart. The monthly chart offers an excellent view of a stock’s long-term trend. The weekly chart helps a savvy investor identify time-tested chart patterns that have repeatedly emerged among big stock market winners. Finally, the daily chart helps pinpoint an exact buy point.
During the 2022 bear market, Microsoft struggled like other growth companies. But in early November 2022, the stock bottomed out at 213.43 and began to grind higher. Three months later in February 2023, Microsoft stock attempted to break a 14-month downtrend. While it gained some ground, the attempt failed. But in March, Microsoft busted out of that downtrend in bullish form. Mr. Softy rallied 15.6% that month. Turnover climbed.
The monthly action highlighted a bullish character change in Microsoft stock.
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MSFT Stock: Weekly Chart Action
On a weekly chart, MSFT delivered a buy opportunity when it cleared 276.76, the high in the week ended Feb. 10, 2023, in enormous weekly turnover of 237 million shares. This strong move signaled unusually strong demand. Over 18 weeks, Microsoft rallied more than 32%, then dipped back into base-building phase.
A base allows a great stock to take a break as investors lock in gains. The price action becomes dull; general interest wanes. However, when institutions start getting greedy again, the stock begins to rally off lows and set up a potential breakout.
In the week ended Nov. 10, 2023, shares cleared a shallow saucer pattern with a 366.78 buy point. Shares went on to form a base-on-base pattern.
Not all breakouts succeed.
In the week ended May 24 this year, Microsoft stock poked above a 430.82 entry. Gains were minimal. On May 31, it fell 7% below the buy point, triggering the golden rule of investing: cut losses short. Two months later in July, Microsoft dove below its 10-week moving average.
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Microsoft Stock: Daily Chart Action
On Sept. 18 and 19, IBD boosted its suggested investment exposure level twice. This has implications for new positions.
In recent weeks, Microsoft offered an aggressive entry near its 200-day moving average — drawn in black on a daily chart at Investors.com and in MarketSurge — for investors who already hold a big gain and would like to add to their positions. The 200-day moving average is rising steadily and has now surpassed 420.
This column noted in recent weeks that shares are trying to rally above the 200-day line. It makes sense to wait and see if the stock not only stabilizes but also rallies in robust fashion back above the 200-day line before possibly going long.
Given the whipsawing action, Microsoft stock needs to prove it can solidly regain support at the 200-day moving average before it is a new buy. So investors should wait and watch at this point.
Always stay wary of buying too far above the 200-day line on a price percentage basis. IBD suggests this rule: Buy within 5% of the buy point or moving average. At this point, with the right side of the base taking more shape, a potential trendline entry near 430 is also emerging. Also watch for a potential handle, or final shakeout of disgruntled shareholders before a potential big run, to complete.
Meanwhile, the stock continues to build a base; that’s another big reason to keep monitoring its chart action.
For long-term holders, MSFT is not a sell. But watch to see how it handles a potential test of its recent lows: 388.03 back in April and 385.59 set on Aug. 5.
Finally, if the nascent rebound withers and MSFT falls hard, traders need to cut losses on newly bought shares. Keeping losses at no larger than 7% remains the golden rule of investing.
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