by SignalFactory · October 26, 2021 | 12:43:17 UTC
There is no question that tech stocks, particularly software names, have powered the market higher since the March 2020 bottom. The shift to remote work has forced corporations to increase spending not only on cloud computing but also on ways to accelerate their digital transformation to stay competitive.
Few companies have benefited from this shift more than Microsoft (MSFT) which has seen its shares surge almost 30% over the past six months to near all-time highs. The software giant is set to report first-quarter fiscal 2022 earnings after the closing bell Tuesday. Sustained work and learn-from-home trends, which have driven increased demand for Microsoft services, particularly in the Intelligent Cloud segments, are expected to remain high.
Thanks to a strong of better-than-expected earnings, Microsoft stock has been a big winner this year, surging some 40% compared with a 21% rise for the S&P 500 index. Microsoft’s commercial cloud segment which includes Azure, generating some 42% of total revenues in the last quarter, remains one of the most important parts of the business. Not only did quarterly revenues surge 36% in Q4, but booking also rose surged 30% with the company citing a cycle of net long-term cloud contracts.
The market values the ability to anticipate continued revenue growth given the recurring nature of the services business. Investors will also listen for comments regarding the company’s recently announced $19.7 billion all-cash deal for Nuance Communications. Nuance’s cloud and AI software is the key appeal in this deal.
For the quarter that ended September, the Redmond, Wash.-based tech giant is expected to earn $2.07 per share on revenue of $43.97 billion. This compares to the year-ago quarter when earnings were $1.82 per share on $35.72 billion in revenue. For the full year, ending June, earnings are projected to rise 9% year over year to $8.81 per share, while full-year revenue of $192.12 billion would mark a year-over-year increase of 14.3%.
Wall Street remains broadly positive about the company’s prospects to achieve double-digit revenue growth in fiscal 2022, particularly given the strong growth rate within its Azure cloud platform which in 2021 is expected to surpass Amazon’s AWS. In the fourth quarter, the company delivered revenue growth of nearly more than 21% the company’s highest growth rate in almost three years. Fourth-quarter EPS of $2.17 per share surpassed Street estimates by 24 cents which underscored the improvements the company continues to make in gross margins.
Microsoft’s intelligent cloud segment posted revenues of $17.4 billion, rising 30% year over year and 7% above the company’s guidance. Revenue for the Azure cloud platform surged 51% year over year, besting the 46% growth in the fiscal second quarter. Office Commercial products and cloud services rose 20% driven by the 25% growth for Office 365 Commercial. Office Consumer grew 18%, while LinkedIn revenue rose 46% owing to the 97% surge in Marketing Solutions.
Microsoft continues to demonstrate not only exceptional operating efficiency but also tremendous operating leverage, forecasting Intelligent Cloud revenue $16.40 16.65 billion, above Street estimates. But for the stock to keep powering higher, Microsoft on Tuesday must provide strong guidance for the next quarter and fiscal year.
Microsoft Long (Buy) Enter at: 311.14 T.P_1: 321.24 T.P_2: 346.54 T.P_3: 363.89 T.P_4: 384.00 S.L: 278.47
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