Software giant Microsoft (MSFT) has earned plaudits for its successful pivot from desktop computing to cloud computing. And MSFT stock has risen as a result. Many investors may be wondering: Is Microsoft stock a buy right now?
Bill Gates and Paul Allen started Microsoft in 1975 at the dawn of the personal computer era to make PC operating system software. The company’s Windows operating system came to dominate the PC landscape. Microsoft expanded over the years into productivity software, server software, internet services, video games and PC hardware and accessories.
Current Chief Executive Satya Nadella took the reins of the Redmond, Wash.-based company in 2014 and led Microsoft full steam into cloud computing.
The company’s cloud offerings today include Azure infrastructure services, Office 365 productivity software and Dynamics enterprise software. Microsoft also owns LinkedIn, Skype and GitHub.
MSFT Stock News: Big HoloLens Contract
On March 31, Microsoft received a contract to supply over 120,000 Microsoft HoloLens augmented-reality headsets to the U.S. Army. The contract is part of the Integrated Visual Augmentation System (IVAS) program. The deal could be worth up to $21.88 billion over 10 years.
In October 2019, Microsoft beat out heavily favored Amazon.com (AMZN) to win a major U.S. Defense Department cloud-computing contract. The contract, known as JEDI, or Joint Enterprise Defense Infrastructure, is worth $10 billion over a 10-year period. Amazon has contested the contract award in court.
Amazon.com’s Amazon Web Services is the world’s largest provider of cloud infrastructure services. In the fourth quarter, AWS had 32% market share, according to research firm Canalys. Microsoft was in second place with 20% market share, up from 19% in the third quarter.
Microsoft has increased its market share from 10% to 20% over 16 quarters, according to Synergy Research Group. Its recent gains have come at the expense of smaller players, Synergy said. Microsoft’s increasing cloud market share has been a tailwind for MSFT stock.
Other major cloud players include Alphabet (GOOGL) unit Google Cloud Platform, as well as China’s Alibaba (BABA) and Tencent (TCEHY). Overall enterprise spending on cloud infrastructure services reached $39.9 billion in the fourth quarter, up 32% year over year, Canalys said.
On Feb. 24, Microsoft announced three new industry-specific cloud offerings. They included versions of Microsoft Cloud for financial services, manufacturing, and nonprofits. It also previewed a version for retail. Plus, it provided the first update to Microsoft Cloud for Healthcare. Microsoft stock rose 0.6% on the news.
Microsoft Stock Fundamental Analysis
Late Jan. 26, Microsoft crushed Wall Street’s estimates for its fiscal second quarter ended Dec. 31, thanks to growth from its cloud computing businesses. It also guided higher for the current quarter. Microsoft stock rose 0.3% on the news the next day.
Microsoft earned $2.03 a share, up 34% year over year, on sales of $43.08 billion, up 17%, in the December quarter. Analysts expected Microsoft earnings of $1.64 a share on sales of $40.18 billion.
The report marked Microsoft’s second straight quarter of accelerating earnings growth. It also was the company’s fastest sales growth in nine quarters.
For the March quarter, Microsoft expects sales of $40.8 billion, up 16.5%, based on the midpoint of its outlook. Its guidance implied earnings per share of $1.75, up 25%. Analysts had predicted Microsoft earnings of $1.58 a share on sales of $38.7 billion in the company’s fiscal third quarter.
The next catalyst for Microsoft stock could be its fiscal third-quarter earnings report, due in late April.
Microsoft has benefited from the work-from-home and learn-at-home trends during the Covid-19 pandemic. The trends have spurred an increase in PC buying. Also, Microsoft’s cloud software and services are aiding at-home workers and students.
MSFT Stock Technical Analysis
MSFT stock dipped during the recent tech stock sell-off. It ended the regular session April 1 at 242.35.
Microsoft stock has a subpar IBD Relative Strength Rating of 42 out of 99. The best growth stocks typically have RS Ratings of at least 80.
The IBD Stock Checkup tool gives MSFT stock an IBD Composite Rating of 79 out of 99. IBD’s Composite Rating combines five separate proprietary rankings into one easy-to-use number. The best growth stocks have a Composite Rating of 90 or better.
Microsoft ranks second out of seven stocks in IBD’s Computer Software-Desktop industry group. However, the desktop software group ranks No. 155 out of 197 industry groups that IBD tracks. Choosing highly rated stocks from leading industry groups in a confirmed stock market uptrend generally increases your chances of making profits in growth stocks.
Is Microsoft Stock A Buy Right Now?
Microsoft stock is not a buy right now, but it soon could be. MSFT stock has formed a flat base with a buy point of 246.23, MarketSmith charts show.
During the recent tech stock sell-off, Microsoft stock found support at its 10-week moving average line.
However, Microsoft stock has an IBD Accumulation/Distribution Rating of D+. The rating, on an A+ to E scale, measures institutional buying and selling in a stock over the past 13 weeks. A+ signifies heavy institutional buying and E means heavy selling. A C rating is average.
Keep an eye on the overall stock market. If the market turns south, don’t try to fight the general stock market direction.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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