Is Microsoft Stock A Buy As Software Giant Gains Cloud Market Share?

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: Nuance Acquisition

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

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.

On May 10, the Wall Street Journal reported that the Pentagon is considering canceling the JEDI contract, which is still mired in litigation.

Amazon.com’s Amazon Web Services is the world’s largest provider of cloud infrastructure services. In the first quarter, AWS had 32% market share, according to research firm Canalys. Microsoft was in second place with 19% 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 $41.8 billion in the first quarter, up 35% 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 April 27, Microsoft beat Wall Street’s estimates for its fiscal third quarter ended March 31 thanks to strong sales of cloud computing services. It also guided higher for the current quarter. But Microsoft stock fell 2.8% on the news the next day.

Microsoft earned an adjusted $1.95 a share on sales of $41.71 billion in the March quarter. Analysts expected Microsoft earnings of $1.78 a share on sales of $41.03 billion. On a year-over-year basis, Microsoft earnings rose 39% while sales climbed 19%.

The report marked Microsoft’s third-straight quarter of accelerating earnings growth. It also was the company’s fastest sales growth in 11 quarters.

For the June quarter, Microsoft expects sales of $44.05 billion, up 15.8% year over year, based on the midpoint of its outlook. Wall Street was looking for revenue of $42.98 billion in the fiscal fourth 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 April 5, Microsoft stock broke out of a seven-week flat base at a buy point of 246.23, according to IBD MarketSmith charts. It hit a record high of 263.19 on April 27 ahead of its earnings report.

Microsoft stock has a middling IBD Relative Strength Rating of 46 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 an IBD Composite Rating of 74 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 eight stocks in IBD’s Computer Software-Desktop industry group. However, the desktop software group ranks No. 153 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 and in the IBD Long-Term Leaders Portfolio.

Is Microsoft Stock A Buy Right Now?

Microsoft stock is not a buy right now. MSFT stock has fallen out of the 5% buy zone of its recent breakout, MarketSmith charts show.

Also, Microsoft stock has an IBD Accumulation/Distribution Rating of E. 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.

On a positive note, during the recent tech stock sell-off, Microsoft stock found support at its 10-week moving average line.

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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