Is Microsoft Stock A Buy Before Software Giant’s December-Quarter Report?

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: Metaverse Advances

Microsoft lately has been promoting the metaverse, an immersive, next-generation version of the internet. It currently makes HoloLens mixed-reality headsets for remote collaboration.

At CES 2022, chipmaker Qualcomm (QCOM) announced a partnership with Microsoft to develop lightweight augmented-reality glasses.

At the Microsoft’s Ignite 2021 online event on Nov. 2, Microsoft showed off its latest innovations for the corporate metaverse. They include Dynamics 365 Connected Spaces and Mesh for Microsoft Teams. Microsoft stock rose 1.1% after the announcements.

Cloud Price Increases, Windows 11

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. Microsoft released Windows 11 on Oct. 5.

In other news, Microsoft is working to close its $19.7 billion acquisition Nuance Communications (NUAN). The acquisition of Nuance will give Microsoft more heft in the health-care sector.

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 third quarter, AWS had 32% market share, according to research firm Canalys. Microsoft was in second place with 21% 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 $49.4 billion in the third quarter, up 35% year over year, Canalys said.

Microsoft Stock Fundamental Analysis

Late Oct. 26, Microsoft delivered a beat-and-raise report for its fiscal first quarter ended Sept. 30. Microsoft stock jumped 4.2% on the news the next day.

Microsoft earned an adjusted $2.27 a share on sales of $45.3 billion in the September quarter. Wall Street had predicted Microsoft earnings of $2.08 a share on sales of $44 billion, according to FactSet. On a year-over-year basis, Microsoft earnings rose 25% while sales increased 22%.

The report marked Microsoft’s fifth straight quarter of accelerating sales growth.

Microsoft has seen growth in digital transformation efforts by enterprise customers during the Covid-19 pandemic.

The next potential catalyst for Microsoft stock is the company’s fiscal second-quarter report on Jan. 25. Analysts expect Microsoft to earn $2.31 a share on sales of $50.6 billion in the December quarter, according to FactSet. That would translate to year-over-year growth of 14% in earnings and 17% in sales.

MSFT Stock Technical Analysis

On Oct. 18, Microsoft stock hit a buy point of 305.94 out of a flat base, according to IBD MarketSmith charts.

That breakout followed a June 21 breakout when Microsoft stock hit a buy point of 263.29 out of a cup base.

Microsoft stock has a decent IBD Relative Strength Rating of 85 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 83 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 first out of eight stocks in IBD’s Computer Software-Desktop industry group. But the desktop software group ranks No. 188 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.

Plus, Microsoft ranked first on IBD’s list of ESG stocks for investors investors focused on environmental, social and governance issues.

Is Microsoft Stock A Buy Right Now?

Microsoft stock is not a buy right now, but it soon could be. MSFT stock has formed a flat base with a buy point of 349.77, according to MarketSmith charts. However, it is trading near the bottom of its new base. Microsoft stock ended the regular session on Jan. 14 at 310.20.

In a negative sign, MSFT stock is trading beneath its 50-day moving average line.

Also, Microsoft stock has a worst-possible 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.

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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