Microsoft earnings: Will Azure and AI developments prove to be tailwinds? – Stock Market News
April 21, 2023 12:27 pm
With Microsoft’s stock gaining nearly 40% since it bottomed out in October and artificial intelligence making large steps in our lives, investors may be eagerly awaiting the tech giant’s upcoming earnings release, scheduled for Tuesday after the closing bell. Will the numbers add more fuel to the share’s latest uptrend?
Revenue and earnings are expected to rise
On Tuesday, Microsoft will report results for the third quarter of its fiscal year, with earnings per share expected to rise 0.50% from a year ago to 2.23 from 2.22. Revenue is anticipated to have increased 3.37% to $51.024bn, with the main contributor being the cloud service, despite a second quarter of a strong decline in the more personal computing segment. Productivity and businesses are seen growing at a faster pace than in the last three months of 2023.
Spotlight to fall on Azure
Azure is Microsoft’s cloud computing platform, which provides up to 5000 services in 54 regions around the world and holds the second place in the public cloud adoption market. Just on Wednesday, it was announced that Azure’s Open AI service is planned to be integrated with Epic’s electronic health record software with technological advancements aimed at increasing productivity and ensuring long-term financial stability for the sector. Therefore, apart from Azure’s performance during the quarter, investors may watch closely the estimates for the platform’s growth in the coming quarters.
Other products could also help
Revenue for the Windows maker is also likely to be driven by steady traction in other commercial products amid weak personal computer demand. Following strong growth due to pandemic-led demand for remote working, Microsoft’s personal computing segment nearly stagnated in the first fiscal quarter and shrank in the second. Now the forecast is for another deep dive.
That said, the steady growth in Teams offering might have added decent fuel during the quarter as the remote and hybrid work models continue to be accepted and embraced by employers. Strong adoption of Dynamics 365, a product line of enterprise resource planning and customer relationship intelligent business applications, may have also driven top line growth.
Introducing “Athena”
On top of that, on Tuesday, the tech giant announced that it is developing its own artificial intelligence chip named “Athena” that will power the technology behind AI chatbots like ChatGPT. The news comes after the firm earlier this year launched its own AI-powered engine Bing AI in partnership with OpenAI, in an attempt to gain market share from Google. Microsoft is hoping that the new chip will perform better than anything they currently buy from other vendors, which could prove cost and time saving. Therefore, combined with a potentially strong earnings report on Tuesday, a successful expansion in Microsoft’s AI business may encourage investors to keep the stock in their portfolios for longer.
Overvalued or not?
Having said all that though, with the 12-month forward price-to-earnings ratio of Microsoft decently above its long-term averages, some investors may be reluctant to buy at current levels as they may consider the stock to be overvalued.
However, the risks surrounding the bigger picture likely remain tilted to the upside, even if the stock corrects a bit lower in the short term. Microsoft is considered a high-growth firm, usually valued by discounting expected cash flows for the quarters and years ahead. Therefore, with net income generally expected to grow at larger rates in future quarters and bets for rate cuts by the Fed later this year remaining firmly on the table, Microsoft’s present value may be destined to continue increasing.
What about from a technical standpoint?
Microsoft has been trading in a consolidative manner between the 282 and 294 barriers since March 30. That said, in the bigger picture, the stock has been printing higher lows and higher highs above an uptrend line since January 6, while since March 14, it has been trading above both the 50- and 200-day exponential moving averages (EMAs). This paints a positive medium-term picture.
That said, for the uptrend to continue, traders may need to overcome the key zone of 294, which has been resisting the bulls since April 2022. The break of that zone may open the way towards the 315 area, which provided resistance between February and April 2022. If investors are still interested in this stock, a break above 315 could carry extensions towards the 344 territory or the record high of 349.67, hit on November 22.
The outlook could darken upon a dip below the inside swing high of March 6, at 260. Such a slide would take the share price below both the aforementioned uptrend line and the moving averages. This may allow declines towards the 246 zone and if investors are not willing to buy near that level either, then the slide could continue towards the low of January 19 at around 230.
With Microsoft’s stock gaining nearly 40% since it bottomed out in October and artificial intelligence making large steps in our lives, investors may be eagerly awaiting the tech giant’s upcoming earnings release, scheduled for Tuesday after the closing bell. Will the numbers add more fuel to the share’s latest uptrend?
Revenue and earnings are expected to rise
On Tuesday, Microsoft will report results for the third quarter of its fiscal year, with earnings per share expected to rise 0.50% from a year ago to 2.23 from 2.22. Revenue is anticipated to have increased 3.37% to $51.024bn, with the main contributor being the cloud service, despite a second quarter of a strong decline in the more personal computing segment. Productivity and businesses are seen growing at a faster pace than in the last three months of 2023.
Spotlight to fall on Azure
Azure is Microsoft’s cloud computing platform, which provides up to 5000 services in 54 regions around the world and holds the second place in the public cloud adoption market. Just on Wednesday, it was announced that Azure’s Open AI service is planned to be integrated with Epic’s electronic health record software with technological advancements aimed at increasing productivity and ensuring long-term financial stability for the sector. Therefore, apart from Azure’s performance during the quarter, investors may watch closely the estimates for the platform’s growth in the coming quarters.
Other products could also help
Revenue for the Windows maker is also likely to be driven by steady traction in other commercial products amid weak personal computer demand. Following strong growth due to pandemic-led demand for remote working, Microsoft’s personal computing segment nearly stagnated in the first fiscal quarter and shrank in the second. Now the forecast is for another deep dive.
That said, the steady growth in Teams offering might have added decent fuel during the quarter as the remote and hybrid work models continue to be accepted and embraced by employers. Strong adoption of Dynamics 365, a product line of enterprise resource planning and customer relationship intelligent business applications, may have also driven top line growth.
Introducing “Athena”
On top of that, on Tuesday, the tech giant announced that it is developing its own artificial intelligence chip named “Athena” that will power the technology behind AI chatbots like ChatGPT. The news comes after the firm earlier this year launched its own AI-powered engine Bing AI in partnership with OpenAI, in an attempt to gain market share from Google. Microsoft is hoping that the new chip will perform better than anything they currently buy from other vendors, which could prove cost and time saving. Therefore, combined with a potentially strong earnings report on Tuesday, a successful expansion in Microsoft’s AI business may encourage investors to keep the stock in their portfolios for longer.
Overvalued or not?
Having said all that though, with the 12-month forward price-to-earnings ratio of Microsoft decently above its long-term averages, some investors may be reluctant to buy at current levels as they may consider the stock to be overvalued.
However, the risks surrounding the bigger picture likely remain tilted to the upside, even if the stock corrects a bit lower in the short term. Microsoft is considered a high-growth firm, usually valued by discounting expected cash flows for the quarters and years ahead. Therefore, with net income generally expected to grow at larger rates in future quarters and bets for rate cuts by the Fed later this year remaining firmly on the table, Microsoft’s present value may be destined to continue increasing.
What about from a technical standpoint?
Microsoft has been trading in a consolidative manner between the 282 and 294 barriers since March 30. That said, in the bigger picture, the stock has been printing higher lows and higher highs above an uptrend line since January 6, while since March 14, it has been trading above both the 50- and 200-day exponential moving averages (EMAs). This paints a positive medium-term picture.
That said, for the uptrend to continue, traders may need to overcome the key zone of 294, which has been resisting the bulls since April 2022. The break of that zone may open the way towards the 315 area, which provided resistance between February and April 2022. If investors are still interested in this stock, a break above 315 could carry extensions towards the 344 territory or the record high of 349.67, hit on November 22.
The outlook could darken upon a dip below the inside swing high of March 6, at 260. Such a slide would take the share price below both the aforementioned uptrend line and the moving averages. This may allow declines towards the 246 zone and if investors are not willing to buy near that level either, then the slide could continue towards the low of January 19 at around 230.
Related Posts: