Mr. Softie was its nickname, but that was under the old leadership. The new Microsoft (NASDAQ:MSFT) management team with Satya Nadella’s as leader are at the head of the technology sector.
Gone are the days where MSFT was labeled as the place where money went to die. Microsoft stock is almost second to none among the high profile mega-cap tech companies. For the past 12 months, it is up 14%, which is much better than most. As of yesterday, names like Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL) and IBM (NYSE:IBM) were down 22%, 7% and 18%, respectively. This is even after AAPL’s 7% spike on earnings this week.
Last night, MSFT reported earnings and the knee-jerk reaction has been negative. Microsoft stock fell 3% on the headline in after-hours trading and continues to struggle this morning. The results were mixed. They beat the bottom line but missed on sales. The reason that likely caused the revenue miss was related to chip shortages. This sounds like a transitory problem that won’t linger.
Since this is a mature company it is more important to beat the earnings line. So these results are not concerning over the long term and are not a reason to sell the stock.
MSFT management still delivered on growth and other areas that matter. Cloud computing grew 20% from last year and that is what the new wave likes. Recently the world’s focus turned to the cloud rather than standalone unit computing. Unlike IBM, this team has successfully steered their ship into the right tide.
Most impressive is that revenues from their cloud-computing segment Azure increased 76% when compared to last year. So last night’s miss is more likely lofty expectations rather than a failure in execution. MSFT is firing on all cylinders and a few pennies short on the sales line is not going to change the bullish thesis.
Microsoft Stock Is a Solid Buy Here
Long term, Microsoft stock belongs in all portfolios. Since they don’t ring bells to announce the perfect entry points, I can assume that there could be cheaper entries than today. But if I wait for the perfect timing for everything, I would never own stocks and miss on more opportunities than make mistakes.
There is reason to fret the headlines here. Since we are still waiting on a few deadlines looming through March. The U.S. and China are meeting even this week to try and resolve their differences on the tariff and intellectual problems. Moreover, we still have to contend with the spending limit and the U.S. budget and the redux of the government shutdown. But these also shall pass.
Eventually, fundamentals will win over headlines as long as they don’t materially change the thesis. For now, the macroeconomic conditions still favor growth. This week we also learned that the Federal Reserve is probably done raising rates. This will relieve pressure off other central banks to raise rates, especially the ECB. So we will still have very dovish central banks across the globe.
How much am I going to save by waiting? MSFT stock sells at a forward price-to-earnings ratio of 20. This earnings report, although not excellent, does not suggest that they are going to shrink going forward. So if I buy it here, I am going to make money in the long term.
Bottom Line on MSFT Stock
Technically, MSFT has clear areas of support and breakout opportunities. Last May, the stock made a sharp move and established $95 per share as a major pivot point. Those become support during corrections. So the bulls will have a firm footing to defend the stock in case of trouble here. Last Christmas, when the stock market crashed, Microsoft stock temporarily fell below it but swiftly bounced and rallied 15% from low to high. This confirms this notion of support in the mid 90’s.
Furthermore, there is upside opportunity. The stock recently failed at $108 per share on Jan. 18. If the bulls can take it out, then this would invite momentum buyers for a $10 move and target a new all-time high. In that case, there would be areas of resistance like at $111, $113.50 and especially at the prior $116 high.
The point is simple: MSFT has been doing very well in this new age of technology. This report emphatically does not change that fact. If I own the shares, I want to hold them. Otherwise, I should build a position in it, even if there will be periods of uncertainty in the short term.
Click here for a bonus video that I recently shared discussing Square (SQ). I think it can help to look at this one here too. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
