On Tuesday, we saw an almost 4% decline in the Nasdaq ahead of the big tech earnings being released. The tech heavy exchange was retesting its March 14 lows. Since the trading volume was light, I’m not too worried about it just yet. (Low trading volume in these situations means the sellers are not in control.) In fact, I think the Nasdaq is grossly oversold.
The reality is that since the end of 2021, tech stocks have had a hard time finding their footing. The fact is, in high inflationary environments, tech company’s often struggle as consumers take a close look at their spending. However, in the grand scheme of things, this is often a short-term problem…
Now, while many tech stocks missed earnings expectations and took a beating after, there’s one company who surpassed expectations and rallied higher. I’m talking about Microsoft (NASDAQ:MSFT). So, in today’s Market360, let’s take a closer look at Microsoft’s latest report…
Microsoft’s Big Earnings Reveal
Microsoft released its earnings report for its third quarter in fiscal year 2022 after the closing bell on Tuesday. Shares jumped 6% in after-hours trading as the company beat top- and bottom-line expectations.
The company reported earnings of $2.22 per share on revenue of $49.36 billion. This translates to 13.8% year-over-year earnings growth and 18% year-over-year revenue growth. Analysts were looking for earnings of $2.18 per share on revenue of $49.03 billion, so the company posted a 1.8% earnings surprise and a 0.67% revenue surprise.
Microsoft also raised its revenue expectations for its fiscal fourth quarter. As reported by CNBC, the company’s finance chief Amy Hood called for:
“Fourth-quarter revenue of $52.4 billion to $53.2 billion… Hood’s revenue guidance for each of the company’s three business segments surpassed the expectations of analysts surveyed by StreetAccount.”
The star of the show on Tuesday evening was Microsoft’s cloud business, Azure. Revenue for the company’s cloud business rose 42%, which was right in line with expectations.
As reported by Bloomberg:
“Chief Executive Officer Satya Nadella has built up the company’s two main cloud businesses, Azure and internet-based versions of Office, into steady growth engines that help insulate Microsoft from supply-chain weakness that hurt the availability of PCs and Xbox consoles. Azure — behind only Amazon.com Inc. in the market for cloud infrastructure services, computing power and storage delivered via the internet — posted 46% growth, matching the rate in the second quarter and meeting estimates.”
During the call Microsoft CEO Satya Nadella said:
“[Our] digital technology will be the key input that fuels the world’s digital output. In an inflationary environment, the only deflationary thing is software. I don’t hear businesses looking to their IT budgets for cuts.”
Is Microsoft a Buy?
To answer that question let’s turn to Portfolio Grader…
Right now, Portfolio Grader is showing a “B” grade for Microsoft:
And compared to the rest of big tech, I would say its fairing pretty well:
The only other “B” grade goes to Google’s parent company Alphabet (NASDAQ:GOOG). (I’ll share more on GOOG and the rest of the FAANG earnings tomorrow, so keep an eye on your inbox.)
But this quarter, Microsoft’s earnings far outshined the search giant. I should also note that Portfolio Grader first flagged MSFT as a buy back in September.
So, will Microsoft hand investors gains in the near future? Signs point to yes.
Now, Microsoft may be rated a “Buy” right now, but I still think there are better opportunities out there in the current inflationary environment. I’m talking about plays in energy, energy-related stocks and commodity plays. I explain exactly why in today’s Growth Investor Monthly Issue for May, as well as reveal new recommendations to take advantage of the energy boom. Specifically, two energy-related stocks and one chemical company, as well as an oil and gas company and a metals company.
P.S. There is a great divide opening up in America — and investing in my Growth Investor stocks will help get you on the right side of it. On one side is a new aristocracy that’s amassing more wealth more quickly than any other group in American history. For people like me, the one percent, life has never been better, more prosperous.
On the other side, the opposite is happening. Wealth is flowing out of the pockets of ordinary Americans at an unprecedented rate.
What’s happening is only going to gather in strength over the coming decades. It certainly won’t weaken.
Few Americans even know that any of this is going on. I’ve never seen anyone from my side of the chasm step forward to explain any of these things.
It’s why I put together this video. In it, I’ll lay out exactly what is happening, including several key steps every American should take right now.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Amazon.com, Inc. (AMZN), Alphabet Inc (GOOG), Microsoft Corporation (MSFT)