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. But after a recent pullback, 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. Recently, he has been promoting the company’s advances in artificial intelligence.
The company’s cloud offerings today include Azure infrastructure services, Office 365 productivity software and Dynamics enterprise software. Also, Microsoft owns LinkedIn, Skype and GitHub.
Microsoft Trails Amazon In Cloud Computing
Microsoft is gaining on Amazon.com‘s (AMZN) Amazon Web Services in the market for cloud infrastructure services.
In the fourth quarter, Amazon Web Services had 32% market share, according to research firm Canalys. Microsoft was in second place with 23% 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 $65.8 billion in the fourth quarter, up 23% year over year, Canalys said.
MSFT Stock News: OpenAI Partnership
Microsoft lately has been promoting its efforts to infuse artificial intelligence into its software and services.
In March 2022, Microsoft completed its $19.7 billion acquisition of Nuance Communications, a leader in voice recognition software and conversational artificial intelligence. The acquisition of Nuance, announced in April 2021, gives Microsoft more heft in the health-care sector.
On Jan. 23, Microsoft announced a new investment, reportedly worth $10 billion, in artificial intelligence startup OpenAI. OpenAI is the organization behind text generator ChatGPT and image generator Dall-E. Microsoft previously had invested in OpenAI in 2019 and 2021.
Microsoft is providing its Azure cloud computing infrastructure for OpenAI. It also is adding OpenAI models to its consumer and enterprise software products.
On Feb. 7, Microsoft showed off its new Bing search engine and Edge web browser that use AI technology. Microsoft hopes the OpenAI-based technology can help Bing chip away at Google’s dominance in the internet search market. MSFT stock jumped 4.2% on the news.
Microsoft stock received a flurry of price-target increases from Wall Street analysts after the presentation.
Activision Blizzard Acquisition Stalled
Meanwhile, Microsoft’s proposed acquisition of video game publisher Activision Blizzard (ATVI) is facing challenges from antitrust regulators.
Microsoft announced a deal to buy Activision in January 2022 for $68.7 billion in cash. Microsoft said the Activision purchase will accelerate the growth of its gaming business and provide building blocks for the coming metaverse. But Microsoft stock fell 2.4% on the news.
On Dec. 8, the Federal Trade Commission filed an antitrust lawsuit to block Microsoft’s purchase of Activision. Microsoft is fighting the lawsuit. The acquisition also faces regulatory objections in Europe.
Microsoft Stock Fundamental Analysis
Late on Jan. 24, Microsoft reported mixed results for the December quarter and gave disappointing guidance. MSFT stock dipped 0.6% in the next trading session after the report.
Microsoft earned an adjusted $2.32 a share on sales of $52.7 billion in the December quarter. Analysts polled by FactSet had predicted Microsoft earnings of $2.29 a share on sales of $53 billion. On a year-over-year basis, Microsoft earnings slipped 6% while sales rose 2%.
For the current quarter, Microsoft forecast sales of $50.5 billion to $51.5 billion. The midpoint of $51 billion was well below Wall Street’s target of $52.4 billion for the March quarter. In the same quarter last year, Microsoft generated sales of $49.4 billion.
The company also forecast continued deceleration of Azure sales growth to about 30% or 31% in constant currency. Azure sales rose 38% in constant currency in the December quarter.
The next major catalyst for Microsoft stock could be the company’s March-quarter earnings report, due in late April.
MSFT Stock Technical Analysis
After hitting a record high of 349.67 in November 2021, Microsoft stock had a steady decline through 2022. But it’s perked up this year. MSFT stock ended the regular session Feb. 10 at 263.10.
Microsoft stock has a middling IBD Relative Strength Rating of 51 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 a mediocre IBD Composite Rating of 70 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 six stocks in IBD’s Computer Software-Desktop industry group. But the desktop software group ranks No. 168 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 in the IBD Long-Term Leaders Portfolio.
Plus, Microsoft ranked first on IBD’s 2021 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. It needs to form a new base in the right market conditions before setting a potential buy point. Check out IBD’s Big Picture column for the current market direction.
In a positive sign, MSFT stock is trading above its 50-day moving average line, as well as its 200-day line.
Also, Microsoft stock has an IBD Accumulation/Distribution Rating of B. That rating indicates institutional buying of MSFT stock.
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 Leaderboard, MarketSmith 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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