As of yesterday, earnings for the Zacks Computer and Technology sector were up +23.3% from a year ago, with revenues up +10.9%. This amazing performance is not expected to be an isolated to Q3 17, as current estimates are pointing to double digit growth over the next three quarters as well.
Within the tech sector, the three biggest areas of growth are expected to come from the cloud, IoT (internet of things), and data centers. The table below shows the earnings and revenue growth for the most recent time periods, and some historical context.
This week, I highlight two technology companies that have exposure to these high growth areas and pay out a solid dividend.
Tech Titans Regaining Their Mojo: Microsoft Corporation (MSFT)
First is Microsoft Corporation (NASDAQ:MSFT), a Zacks Rank #2 (Buy), recently reported earnings where they easily beat both the Zacks consensus earnings and revenue estimates for the fourth consecutive quarter. Specifically, the company saw year over year gains in the following: revenues +12%, operating income +15%, net income +16%, and diluted earnings per share +17%.
On a segment basis MSFT reported gains almost every group, but their big driver was cloud growth. In the quarter the company exceeded $20 billion in commercial cloud average rate of return (ARR), well ahead of their set goal two years ago. Commercial cloud revenues were up +56% year over year, and now accounts for 31% of revenues. Their Azure cloud computing service grew by +90% year over year, and was twice the growth rate of Amazon Web Services (AWS).
This positive news caused management to guide Q2 revenues just above the street consensus, and kept EPS expectations in line with previous estimates. Further, management recently increased their dividend payment by +8% to $0.42 per share. This brings their annual dividend payment to $1.68 per share for a dividend yield of +2.0%.
Microsoft also just released their newest console, Xbox One X which supports 4K video, has 8 million pixels, and offers a high-dynamic range (HDR). This launch is an example of the company investing more money and time into their gaming business. MSFT is also looking to increase revenues via total subscriptions, games, and service sales for the Xbox One X. While we will have to wait a little bit to see how successful the new console sales are, if the lines outside the doors are any indications, it should be a hit.
As you can see in the Price and Earnings Consensus graph below, the stock price has been on a very good run for the past four quarters, and consensus annual earnings estimates have been rising as well.