MSFT Cont'd To Fall Due To Weak Q4 Outlook ?
Thu, 31 Oct 2024 will probably go down in history as the worst possible Halloween Fright Night.
There was blood all over Wall Street as the market took a hard fall, continuing the mayhem from Wednesday.
When the market closed at the usual 4pm:
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DJIA: -0.9% (-378.08 to 41,763.46). Closed below its 50-day moving average.
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S&P 500: -1.86% (-108.22 to 5,705.45). Closed at 50-day line. Easily index worst day in 8 weeks and fell further from its record set earlier in October 2024.
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Nasdaq: -2.76% (-512.78 to 18,095.15). Ended slightly above 50-day average. Nevertheless it is still index second straight loss.
There was blood all over Wall Street.
According to FactSet, declining stocks topped advancers:
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By about 3-to-1 on the Nasdaq.
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By 2-to-1 on the NYSE.
Big Tech tumble on the last day of October wiped out the S&P 500’s gain for October month. (see below)
The index fell -1.0% for its first down month in the last six, even though it has set an all-time high during the middle of it.
Investors will find similar trace in the other 2 indexes as well - the Dow and Nasdaq.
According to BTIG, MD & Chief market technician, Jonathan Krinsky:
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Such a ‘drastic’ move might have been overdue following an unusually long and placid run.
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Pointed to how the S&P 500 had failed to move by 1% in a day in either direction, without accounting for rounding, for the longest stretch in nearly 3 years.
Heatmap by Sectors.
A quick glance at the Heatmap of US stocks sorted by Sectors revealed:
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Most sectors (Semiconductors, Social media, Consumer electronics, Drug makers, eCommerce, Software Infrastructure & App, Banks, Insurance) were not spared. (see above)
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The only bright spark of the day belonged to Energy sector, oil stocks in particular. Crude oil cost per barrel has climbed back to $70.64 from $69.26.
Microsoft.
$Microsoft(MSFT)$ was a victim of the bloodshed slaughter.
Enterprise software juggernaut MSFT, had started September on the wrong foot. But Microsoft stock reversed bullishly, gaining more than +3.0% for the month.
In recent weeks, the Mega cap tech slowly regained more of its long-running mojo ahead of its fiscal Q1 2025 earnings reporting. (see below)
Q1 2025 Earnings & Outlook.
On 30 Oct 2024, Microsoft’s reported earnings versus analysts’ expectations surveyed by LSEG:
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Earnings per share: $3.30 vs $3.10 expected, that is a +10% YoY gain.
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Revenue: $65.59 billion vs $64.51 billion expected, that is a +16% YoY gain.
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Net income: $24.7 billion vs $22.29 billion, that is a +11% YoY gain.
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Operating income: $30.6 billion vs $26.84 billion, that is a +14% YoY gain.
Like $Advanced Micro Devices(AMD)$ , Microsoft’s revenue outlook for Q4 2024 failed to impress Wall Street.
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CEO Satya Nadella reported that Q4 revenue will be in the range of $68.1 billion to $69.1 billion.
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That implies +10.6% growth at the middle of the range.
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Analysts surveyed by LSEG were looking for $69.83 billion in revenue.
Like $Alphabet(GOOG)$ , Microsoft’s full intelligent cloud segment (includes Azure, Windows Server and enterprise services), generated $24.09 billion in revenue.
That’s up +20% and slightly more than the $24.04 billion StreetAccount consensus. Comparatively speaking, Google’s cloud growth of +35% is more impressive.
What Happened ?
When Microsoft reported its Q1 earnings (after market has closed), it already ‘lost’ > -5% of stock price ‘in-advanced’.
Besides the cloud computing and enterprise software innovator giving a disappointing sales outlook for the current December 2024 ending quarter, many have centered on Microsoft’s estimate for upcoming growth in its Azure cloud-computing business.
That too, fell short of some analysts’ expectations.
On Thu, 31 Oct 2024:
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Shares tanked -6.0% lower and dipped to as low as $406.30 (intraday).
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Volume soared to 53.9 million shares though.
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It was the 2nd busiest day for the tech giant, this year.
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It is now down -5.0% for the week, all but guaranteed to snap a 3-week win streak.
One factor that was hardly picked up by the many press is Microsoft’s continual investment in OpenAI is causing anxiety amongst investors ?
On Wednesday quarterly earnings reporting, MSFT’s CFO has said that she expects the company to take a $1.5 billion hit to income in the current period, because of an expected loss from OpenAI.
To date, Microsoft has invested close to $14 billion in OpenAI, that is still losing bundles of cash.
For FY 2024, OpenAI is expected to lose $5 billion, before stock-based compensation, on $4 billion in revenue.
To soothe investors’ nerves, during the earnings call, CEO Satya Nadella has mentioned that the collaboration with OpenAI has benefited both parties and that the company feels good about “its investment stake in OpenAI - whatever that means.
Mr Softy - A Buy Now ?
Technically speaking, Microsoft stock price of $406.35 per share (as of 31 Oct 2024): (see above)
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Is below its 20-day moving average.
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Is below its 50-day moving average.
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Is below its 200-day moving average.
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With an RSI of “37”, MSFT is neither overbought nor oversold.
My viewpoints: (mine only)
Overall, Microsoft:
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Is a strong company: It is a leader in tech with a history of growth (revenue up 8% to 17% recently).
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Has good financials: EPS are (up +23.5% YoY, for the past 4 quarters) and the company is profitable (37% return on equity in FY 2023).
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Strong stock performance: MSFT has gained+860% since 2014, but is down recently vs S&P 500’s gain of +189%..
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Has favourable analyst rating: Analysts are mostly bullish with a "Strong Buy" rating and an average price target of $503 (24% upside).
To Buy or Not To Buy ?
To err on the side of prudence & caution, maybe “Hold Off” for now.
The stock is too volatile and needs to establish support above its 200-day moving average before it's considered a buy.
Additionally, below is what to watch for:
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Stock Price: Can MSFT hold above $406 and climb back above its 200-day moving average?
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Chart Patterns: Look for a potential trendline entry near $430 or a "handle" formation (a small price drop before a big run).
Realistically which is the “lesser” of two evils - (1) Buy the share and witness its continuous fall OR (2) Hold back purchase and missed the “lowest” entry price but still get onboard the uptrend train ?
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Do you think US market will rally after the PCE inflation report is out ?
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Do you think the recently fell tech stocks (AAPL, AMZN, GOOG, MSFT, META) will lead the recovery?
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