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?
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: JEDI Contract Win
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 protested the contract award, saying President Donald Trump’s bias against the e-commerce giant steered the Pentagon’s decision-making toward Microsoft.
On Sept. 4, the Pentagon reaffirmed its decision to award the JEDI contract to Microsoft. In doing so, it defied a court decision that had blocked the contract from proceeding. Amazon is continuing its legal fight over the contract. On Dec. 15, Amazon filed a court complaint asking a U.S. judge to void the Pentagon’s contract with Microsoft.
Amazon.com’s Amazon Web Services is the world’s largest provider of cloud infrastructure services. In the third quarter, AWS had 33% market share, according to Synergy Research Group. Microsoft is a distant second with 18% market share. Other major players include Alphabet (GOOGL) unit Google Cloud Platform, as well as China’s Alibaba (BABA) and Tencent (TCEHY). Overall spending on cloud infrastructure services neared $33 billion in the third quarter, Synergy said.
Microsoft Stock Fundamental Analysis
On Oct. 27, Microsoft smashed Wall Street’s targets for its fiscal first quarter ended Sept. 30, thanks to strong demand for its cloud computing products. However, its sales guidance for the December quarter was a tad light. MSFT stock fell 5% on the news the next day.
Microsoft earned $1.82 a share, up 32% year over year, on sales of $37.15 billion, up 12%, in the September quarter. Analysts expected Microsoft earnings of $1.54 a share on sales of $35.72 billion.
For the December quarter, Microsoft expects to generate sales of $39.95 billion, based on the midpoint of its outlook. Wall Street had predicted $40.4 billion. Sales in the year-earlier quarter were $36.91 billion.
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 16, MSFT stock broke out of a double-bottom base at a buy point of 175.10, according to IBD MarketSmith charts. IBD Leaderboard analysis provided several additional buy points as Microsoft stock climbed to a record high of 232.86 on Sept. 2.
Microsoft stock is on IBD’s Leaderboard list and in the IBD Long-Term Leaders Portfolio.
Microsoft stock has an IBD Relative Strength Rating of 58 out of 99. That means it has outperformed 58% of stocks over the past 12 months. The best growth stocks typically have RS Ratings of at least 80.
The IBD Stock Checkup tool gives MSFT stock an IBD Composite Rating of 82 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 third out of six stocks in IBD’s Computer Software-Desktop industry group. Cerence (CRNC) is the top-ranked stock in the group, followed by Adobe (ADBE). The desktop software group ranks No. 146 out of 197 industry groups that IBD tracks. Growth stock investors should focus on leading stocks in the top 40 industry groups.
Is Microsoft Stock A Buy Right Now?
Microsoft stock is not a buy right now, but it soon could be. Over the past 17 weeks, MSFT stock has been consolidating with a buy point of 232.96. It ended the regular session Dec. 22 at 223.94.
In a positive sign, Microsoft stock has risen above its 50-day moving average line, where it found support recently.
Also, Microsoft stock has an IBD Accumulation/Distribution Rating of C-, indicating moderate institutional selling. 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.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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