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Russian (RU) Enterprise software juggernaut Microsoft (MSFT), like most tech stocks, had started September on the wrong foot. But Microsoft stock reversed bullishly, gaining more than 3% for the month. Yet in recent sessions, the chart action reflects a whiff of profit-taking in the tech titan.
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On Monday, the stock continued to tread water amid a general decline in daily turnover. The dull action came despite news that the Redmond, Wash., tech giant plans to launch autonomous AI (artificial intelligence) agents that could help workers perform and support tasks in the fields of sales, finance, supply chain management and other areas of business operations.
In fact, the last time shares in Microsoft stock vigorously exchanged hands came on Sept. 20, or the triple-witching session in which weekly and monthly stock and index options expired.
Microsoft stock began to decline on Sept. 18, following the Federal Reserve's key decision to cut interest rates by half a point. Shares also experienced heavier selling pressure after an Oppenheimer research analyst reduced his forecast for Microsoft's Azure cloud computing revenue for the fiscal year ending in June 2025.
However, Microsoft stock is trying to buying support at a key technical level, the 50-day moving average.
Definitely, shares are not yet ready for a new breakout and a big run to all-time highs, which would make every investor owning Microsoft stock happy. But clearly a new set-up has emerged. Currently trading near 420, the Redmond, Wash., firm now trades just 10% off its peak of 468.35.
Microsoft Stock Today
So, is Microsoft stock, affectionately nicknamed by some investors as Mr. Softy, a buy now? Or is it a sell?
This story examines the fundamental, technical and institutional sponsorship metrics of the Redmond, Wash., firm and whether it makes sense right now for individual investors to deploy their capital.
Expect the company's fiscal first-quarter earnings to arrive on Oct. 30 after the market close.
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Long-Term Leader
The member of IBD's Long-Term Leaders resides inside the pantheon of the greatest stock market winners in U.S. history. Not long after its IPO in March 1986, MSFT demonstrated true leadership on an initial breakout from a four-month base. Microsoft stock has shown leadership — and enriched investors by rising to new highs — in multiple bull markets since then.
Without question, the company has done a spectacular job of not only maintaining a high level of reliability and trust in its brand. Management has found new markets and industries in which to grow at a rapid clip. Company financials back up the story.
Microsoft stock has rallied as much as 24.5% since Jan. 1. It began the year at 376.04. However, Microsoft's relative strength line has continued to fall, meaning it's underperformed the S&P 500.
You'd prefer to see a stock's RS line to rise, not fall. The very best stocks are able to rise more quickly during a confirmed market uptrend.
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June Fiscal Q4 Results
On July 30, the company reported earnings in the June-ended fiscal fourth quarter of $2.95 a share, up 10% vs. a year ago and a penny above the FactSet forecast. Revenue grew 15% to $64.7 billion, $300 million above views.
The company's Azure and related cloud services sales jumped a healthy 29% to $28.5 billion. However, that missed the Visible Alpha consensus estimate of $28.7 billion. Devices revenue dropped 11%. LinkedIn revenue grew 10% while Xbox content and services rose 61%. Productivity and business process revenue came in at $20.3 billion. Microsoft chalked up $13.22 billion in product revenue and $15.9 billion in the area of personal computing.
Please read this IBD tech story for more color on analysts' reactions.
Following a global data fiasco rendered by a Windows-related software update failure at CrowdStrike (CRWD), Microsoft stock slumped to the 200-day line, a key long-term technical level of support and resistance.
Nonetheless, Microsoft serves as a principal investment choice in the themes of artificial intelligence, enterprise software, digital hardware and cloud computing. It has gained 860% since the end of July 2014. The S&P 500 has rallied 189%.
Microsoft is slated to report results for the September-ended first quarter of fiscal 2025 on Oct. 30. Wall Street sees earnings rising just 4% to $3.10 a share on a 14% revenue bump up to $64.5 billion.
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Big Earnings Boost Microsoft Stock
In fiscal 2018, Microsoft scored a profit of $3.88 a share. Six years later, profit totaled $11.80 a share, up 204% over that time frame. Over the past four quarters, Microsoft's earnings per share on average rose 23.5% vs. year-ago levels. Simply incredible for a company with trailing 12-month sales topping $245 billion.
Sales have moved at a slower clip than earnings. But growth has remained steady, up 8%, 13%, 18% and 17% in the past four quarters. Gross margin edged back above 70% in the March-ended fiscal third quarter.
No wonder IBD Stock Checkup gives an Earnings Per Share Rating of 93. Yet Microsoft's IBD Composite Rating is still mediocre at 68.
The Relative Strength Rating for Microsoft stock has edged up minimally to 45, still meh. Back in August, it stood at 83. A solid weekly gain, however, could boost Microsoft's RS score.
A 45 RS Rating means Microsoft stock has outperformed only 45% of all companies over the past 12 months. Highly unacceptable. In fact, the average Relative Strength Rating among the biggest stock market winners in recent decades when they began their gigantic price runs is 87, according to IBD research.
This means numerous big winner break out to new highs and produce big profits for investors willing to make a timely buy when their Relative Strength Rating is already strong, say at 95 or higher.
MSFT Stock: Nadella's Take
The company has invested billions of dollars in OpenAI for its ChatGPT AI platform. "This next generation of AI will reshape every software category and every business, including our own," CEO Satya Nadella stated in the company's 2023 annual report. "Forty-eight years after its founding, Microsoft remains a consequential company because time and time again — from PC/Server, to Web/Internet, to Cloud/Mobile — we have adapted to technological paradigm shifts."
Amid a new funding round for OpenAI, according to news reports, the company is now valued at $157 billion.
On Sept. 17, shares rallied as much as 3% and hit a two-month high of 441.85 on news that the company is boosting its share buyback plan by up to $60 billion. That's roughly 1.8% of the company's stock market value of $3.23 trillion. A day later on Sept. 18, Microsoft announced it is teaming up with money management titan BlackRock (BLK) and MGX, a venture fund based in Abu Dhabi, UAE, to invest up to $30 billion in AI infrastructure, including datacenters and energy generation.
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New Fiscal Year: Q1 Estimates
For the September-ending first quarter, the consensus EPS estimate stands at $3.10 vs. $2.99 a year earlier, up a modest 4%. Analysts also see fiscal Q1 sales increasing 14% to $64.5 billion, then up 13% to 14% over the next three quarters. The firm is slated to report Q1 results on Oct. 22.
In fiscal 2023, the company posted an impressive 37% return on equity (ROE), a measure of profit-generating efficiency. Its long-term debt to shareholders equity was reasonably low at 20%. Big stock market winners, such as Microsoft stock, tend to post high ROEs before they stage big price runs. Hence, MSFT also gets a top-drawer A grade for IBD's SMR Rating (Sales + Margins + ROE).
Please see this Investor's Corner for more on the SMR Rating.
Microsoft Stock And Institutional Activity
Microsoft stock has 7.433 billion shares outstanding. One of the few companies in the trillion-dollar club, its total market value hit $3.42 trillion.
Mutual funds, hedge funds, insurers, pension plans, sovereign wealth funds and the like dominate the long-term movement of share prices. MSFT stock is no exception. In the third quarter of 2023, as many as 10,119 mutual funds held MSFT stock, based on MarketSurge data. That number has since grown to as high as 10,475 funds as the end of the June quarter.
To determine the right time to buy MSFT stock, always consult a stock chart. The monthly chart offers an excellent view of a stock's long-term trend. The weekly chart helps a savvy investor identify time-tested chart patterns that have repeatedly emerged among big stock market winners. Finally, the daily chart helps pinpoint an exact buy point.
During the 2022 bear market, Microsoft struggled like other growth companies. But in early November 2022, the stock bottomed out at 213.43 and began to grind higher. Three months later in February 2023, Microsoft stock attempted to break a 14-month downtrend. While it gained some ground, the attempt failed. But in March, Microsoft busted out of that downtrend in bullish form. Mr. Softy rallied 15.6% that month. Turnover climbed.
The monthly action highlighted a bullish character change in Microsoft stock.
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MSFT Stock: Weekly Chart Action
On a weekly chart, MSFT delivered a buy opportunity when it cleared 276.76, the high in the week ended Feb. 10, 2023, in enormous weekly turnover of 237 million shares. This strong move signaled unusually strong demand. Over 18 weeks, Microsoft rallied more than 32%, then dipped back into base-building phase.
A base allows a great stock to take a break as investors lock in gains. The price action becomes dull; general interest wanes. However, when institutions start getting greedy again, the stock begins to rally off lows and set up a potential breakout.
In the week ended Nov. 10, 2023, shares cleared a shallow saucer pattern with a 366.78 buy point. Shares went on to form a base-on-base pattern.
Not all breakouts succeed.
In the week ended May 24 this year, Microsoft stock poked above a 430.82 entry. Gains were minimal. On May 31, it fell 7% below the buy point, triggering the golden rule of investing: cut losses short. Two months later in July, Microsoft dove below its 10-week moving average.
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Microsoft Stock: Daily Chart Action
On Sept. 18 and 19, IBD boosted its suggested investment exposure level twice. This has implications for new positions.
In recent weeks, Microsoft offered an aggressive entry near its 200-day moving average for investors who already hold a big gain and would like to add to their positions. The 200-day moving average is rising bullishly and recently climbed to 415.
This column noted in recent weeks that shares are trying to rally above the 200-day line. It makes sense to wait and see if the stock not only stabilizes but also rallies in robust fashion back above the 200-day line before possibly going long.
In recent weeks, MSFT triggered the new buy signal, yet action has been languid. But on Tuesday morning, the stock surged more than 2% and volume is heavy following reports of bullish comments made by Loop Capital, an expert in long-term technology investing.
So, for now Microsoft stock is a buy again. The reason: In long-term stock market winners, a strong move off the 200-day moving average trigger the new buy signal.
Also, stay wary of buying too far above the 200-day line on a price percentage basis. IBD suggests this rule: Buy within 5% of the buy point or moving average. At this point, with the right side of the base taking more shape, a potential trendline entry near 440 is also emerging. Also watch for a potential handle, or final shakeout of disgruntled shareholders before a potential big run, to complete.
Since Sept. 17, when Mr. Softy hit a high of 441.85, then reversed, the stock has formed a gently downward-sloping handle on the cup pattern. Arguably, a third entry point now exists at 441.85. Microsoft stock needs to halt the current slide to stay within an arm's length away from that price, then possibly stretch past that proper buy point. So far, the handle features a mild 8% decline.
Finally, if the rebound withers and MSFT falls hard, cutting losses on newly bought shares remains the golden rule of investing.
Please follow Chung on X/Twitter: @saitochung and @IBD_DChung
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