Is Microsoft Stock A Buy After Software Giant's June-Quarter Earnings Report?

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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?

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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: Price Increases

On Aug. 19, Microsoft announced the first price increases for its Microsoft 365 and Office 365 commercial cloud product suites. Microsoft stock surged 4.7% over two days on the news.

On July 14, Microsoft unveiled Windows 365, a service that brings its Windows operating system to the cloud. The commercial service streams the full Windows experience, including apps, data and settings, to PCs and other devices. It also creates a new hybrid personal computing category called Cloud PC, the company said. MSFT stock advanced 0.5% that day.

On June 24, Microsoft introduced its Windows 11 personal computer operating system. Microsoft stock rose 0.5% on the news.

Windows 11 features a refreshed design with a new user interface and Start menu. It also provides PC performance improvements and integrates the Teams videoconferencing app. Windows 11 is the successor to Windows 10, which came out in July 2015. Windows 11 will be available this holiday season.

In other recent news, Microsoft announced a deal to buy Nuance Communications (NUAN) for $19.7 billion on April 12. The acquisition of Nuance will give Microsoft more heft in the health-care sector. Microsoft stock rose a fraction on the news.

And, 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. MSFT stock climbed 1.7% on the report.

Microsoft Trails Amazon In Cloud Computing

On July 6, the U.S. Department of Defense canceled a major cloud-computing contract that it awarded to Microsoft in October 2019. Microsoft beat out heavily favored Amazon.com (AMZN) to win the contract known as JEDI, or Joint Enterprise Defense Infrastructure. But Amazon contested the $10 billion contract award in court and delayed its implementation.

The Pentagon now plans to open a new contract, the Joint Warfighter Cloud Capability, to competition. The agency says it will solicit bids from both Amazon and Microsoft for the contract.

Meanwhile, Microsoft is protesting the award of a $10 billion cloud contract to Amazon by the the U.S. National Security Agency. That NSA contract is codenamed WildAndStormy, according to media reports. Microsoft filed an administrative protest via the Government Accountability Office about the contract.

Amazon.com's Amazon Web Services is the world's largest provider of cloud infrastructure services. In the second quarter, AWS had 31% market share, according to research firm Canalys. Microsoft was in second place with 22% market share.

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 $47 billion in the second quarter, up 36% 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 July 27, Microsoft delivered a beat-and-raise report for its fiscal fourth quarter ended June 30. But Microsoft stock edged down 0.1% on the news the next day.

Microsoft earned $2.17 a share on sales of $46.2 billion in the June quarter. Analysts had predicted Microsoft earnings of $1.92 a share on sales of $44.2 billion. On a year-over-year basis, Microsoft earnings rose 49% while sales increased 21%.

The report marked Microsoft's fourth-straight quarter of accelerating sales and earnings growth.

For the September quarter, Microsoft expects to generate sales of $43.75 billion, up 18% from the same period last year. That's based on the midpoint of its guidance. Wall Street had predicted $42.5 billion in sales for Microsoft's fiscal first quarter.

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

On June 21, Microsoft stock hit a buy point of 263.29 out of a cup base, according to IBD MarketSmith charts. It climbed as high as 263.52 before pulling back. Microsoft stock ended the regular session that day at 262.63, just below its buy point.

On June 22, MSFT stock re-entered the buy zone and reached a market capitalization of $2 trillion. It's the second company after Apple (AAPL) to hit that milestone.

Microsoft stock has a good IBD Relative Strength Rating of 86 out of 99. The best growth stocks typically have RS Ratings of at least 80. The Relative Strength rating shows how a stock's price performance stacks up against all other stocks over the last 52 weeks.

The IBD Stock Checkup tool gives MSFT stock a best-possible IBD Composite Rating 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 first out of eight stocks in IBD's Computer Software-Desktop industry group. The desktop software group ranks No. 23 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.

Microsoft stock is on IBD's Leaderboard list. It also is in the IBD Long-Term Leaders Portfolio.

Is Microsoft Stock A Buy Right Now?

Microsoft stock is not a buy right now. It is trading above the 5% buy zone of its breakout, which extends to 276.45, based on IBD trading guidelines. MSFT stock ended the regular session Aug. 20 at 304.36.

Microsoft stock hit an all-time of 305.84 intraday on Aug. 20.

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.

To find the best stocks to buy or watch, check out IBD Stock Lists. Also consult IBD's LeaderboardMarketSmith and SwingTrader platforms.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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