Software giant Microsoft (MSFT) has earned praise for its successful pivot from desktop computing to cloud computing. And as a result, the MSFT stock is up. But after a recent pullback, many investors may be wondering: Are Microsoft shares a bargain right now?
Bill Gates and Paul Allen started Microsoft in 1975, at the dawn of the personal computer era, to create PC operating system software. The company’s Windows operating system began to dominate the PC landscape. Over the years, Microsoft expanded into productivity software, server software, Internet services, video games, and PC hardware and accessories.
Current Chief Executive Satya Nadella took over the reins of the Redmond, Washington-based company in 2014 and led Microsoft full steam ahead to cloud computing.
The company’s cloud offerings currently include Azure infrastructure services, Office 365 productivity software, and Dynamics business software. Microsoft also owns LinkedIn, Skype, and GitHub.
Microsoft follows Amazon in cloud computing
Microsoft is gaining ground Amazon.nl‘s (AMZN) Amazon Web Services in the cloud infrastructure services market.
In the third quarter, Amazon Web Services had a market share of 32%, according to research firm Canalys. Microsoft was in second place with a market share of 22%.
Other major cloud players include Alphabet (GOOGL) unit Google Cloud Platform, as well as that of China alibaba (BABA) and tencent (TCEHY). Total enterprise spending on cloud infrastructure services reached $63.1 billion in the third quarter, up 28% year-over-year, Canalys said.
MSFT Stock News: Activision Deal Challenged
Microsoft has been promoting the metaverse lately, an immersive, next-generation version of the Internet. It currently makes HoloLens mixed-reality headsets for remote collaboration. However, HoloLens development has struggled, the Wall Street Journal reported.
At Microsoft’s November 2021 online Ignite event, Microsoft showcased innovations for the corporate metaverse. They include Dynamics 365 Connected Spaces and Mesh for Microsoft Teams. Microsoft shares rose 1.1% after the announcements.
At CES 2022, chipmaker Qualcomm (QCOM) announced a partnership with Microsoft to develop lightweight augmented reality glasses.
In January 2022, Microsoft announced a deal to buy the video game publisher Activision Blizzard (ATVI) for $68.7 billion in cash. Microsoft said the purchase of Activision will accelerate the growth of its gaming business and provide building blocks for the metaverse. But Microsoft shares fell 2.4% on the news.
On December 8, the Federal Trade Commission filed an antitrust suit to block Microsoft’s purchase of Activision. Microsoft plans to fight the lawsuit.
Nuance acquisition, Windows 11 release
On March 4, Microsoft completed the $19.7 billion acquisition of Nuance Communications, a leader in speech recognition software and conversational artificial intelligence. The acquisition of Nuance, announced in April 2021, will give Microsoft more clout in healthcare.
In October 2021, Microsoft released its Windows 11 operating system for PCs. Windows 11 has a refreshed design with a new user interface and start menu. It also offers PC performance improvements and integrates the Teams app for video conferencing. Windows 11 is the successor to Windows 10, which was released in July 2015.
However, declining PC sales are putting pressure on Microsoft’s Windows business.
Microsoft Stock Fundamental Analysis
Late on Oct. 25, Microsoft reported fiscal first-quarter results that exceeded Wall Street’s targets. But it led much lower than the December quarter views. Also, Azure infrastructure business grew slightly lower than expected in the September quarter.
Microsoft earned $2.35 per share on revenue of $50.1 billion in the quarter ended Sept. 30. Analysts polled by FactSet expected Microsoft to earn $2.31 per share on revenue of $49.7 billion. On a year-over-year basis, Microsoft’s revenue grew 4% while revenue grew 11%. Microsoft shares fell 7.7% to close at 231.32 in the next trading session.
For the current quarter, Microsoft forecast revenue of $52.35 billion to $53.35 billion. The midpoint of $52.85 billion was well below Wall Street’s target of $56.2 billion for the December quarter.
The next catalyst for Microsoft stock could be the company’s December quarterly report, which is expected in late January.
MSFT Stock Technical Analysis
Since reaching an all-time high of 349.67 in November 2021, Microsoft stock has been steadily falling. MSFT shares ended the regular session on December 16 at 244.69.
Microsoft stocks have an underperforming IBD Relative Strength Rating of 40 out of 99. The best growth stocks typically have an RS Rating of at least 80. The Relative Strength rating shows how a stock’s price performance compares to all other stocks in the past 52 weeks.
The IBD Stock Checkup tool gives MSFT stocks a mediocre IBD Composite Rating of 67 out of 99. IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use number. The best growth stocks have a Composite Rating of 90 or better.
Microsoft ranks first of six stocks in IBD’s Computer Software-Desktop industry group. But the desktop software group ranks 182 of the 197 industry groups IBD tracks. Picking highly rated stocks from leading industry groups in a confirmed uptrend in the stock market generally increases your chances of making profits in growth stocks.
Microsoft stocks are in the IBD Long-Term Leaders Portfolio.
In addition, Microsoft was ranked first on IBD’s 2021 list of ESG stocks for investors focused on environmental, social and governance issues.
Is Microsoft Stock Now a Bargain?
Microsoft stock is currently not a buy. It must form a new basis in the right market conditions before determining a potential buying point. Check out IBD’s Big Picture column for current market direction.
In a positive sign, MSFT stock has climbed above the 50-day moving average line. However, it is still trading below the 200-day line.
Also, Microsoft stock has an IBD accumulation/distribution rating of B-. The rating, on a scale from A+ to E, measures a stock’s institutional buying and selling over the past 13 weeks. A+ means heavy institutional buying and E means heavy selling. AC rating is medium.
Keep an eye on the general stock market. If the market turns south, try not to go against the general direction of the stock market.
Check out the IBD Stock Lists to find the best stocks to buy or view. Also check out IBD’s Leaderboard, MarketSmith, and SwingTrader platforms.
Follow Patrick Seitz on Twitter @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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