Is Microsoft’s Innovation Appreciated Enough?
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Shares of Microsoft Corporation (Ticker: MSFT) have continued their surge to new all-time highs, rewarding traders and investors that have bet on the company’s innovation and earnings growth. The company was early on the artificial intelligence (AI) front, having invested $1 billion in OpenAI back in 2019. The question now is whether markets have fully discounted the company’s investment into new forms of technology, or if it’s already priced in.
Translating AI into Earnings
Microsoft is arguably at the tip of the spear when it comes to monetization of AI technologies. Its Copilot software is an AI-powered virtual assistant that helps users answer complex questions and even generate code.
Copilot was rolled out as a subscription-based service, which helps the company generate recurring revenue. Currently, Microsoft is charging $12.50 per month per user on the standard plan, and $22 per month per user on the premium plan.
But Microsoft’s biggest revenue generator remains cloud computing, and it has managed to leverage AI in that space with its Azure program. Microsoft's Cloud revenue increased 24% year-over-year as of December 31, 2023, with a portion of their cloud growth coming from AI services (SDxCentral).
Traders that think Microsoft can continue to leverage growth with artificial intelligence may find an opportunity with Direxion’s Daily MSFT Bull 2X Shares (Ticker: MSFU), which seeks daily investment results, before fees and expenses, of 200% of the performance of the common shares of Microsoft Corporation (Ticker: MSFT).
Below is a daily chart of MSFT as of March 22, 2024.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results.
The slanted blue line represents an uptrend. An uptrend describes the price movement of a financial asset when the overall direction is upward.
How Much Growth is Priced In?
Although artificial intelligence is showing promise for potential earnings growth, investors still need confirmation through actual results. Microsoft’s next earnings report is set to be released on April 23, and the consensus earnings-per-share (EPS)* forecast is $2.83.
If results come in below estimates, it could be a sign that the bulk of the artificial intelligence boom has already run its course and could be a catalyst for a downturn in shares of Microsoft. Of course, there is recession risk too, as the Fed continues to debate what to do with interest rates this year.
Traders that think downside risks are mounting in Microsoft may find an opportunity with Direxion’s Daily MSFT Bear 1X Shares (Ticker: MSFD), which seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite), of the performance of the common shares of Microsoft Corporation (Ticker: MSFT).
More Individual Stock Plays
Traders in search of additional concentrated plays in the equity market may consider Direxion’s other single stock ETFs. These unique funds provide traders an opportunity to take on leverage or have inverse exposure in stocks like Apple, Nvidia, Google, and Amazon. Investing in the single stock ETFs is not the same as investing directly in the respective underlying security.
The Direxion Daily AAPL Bull 2X Shares (Ticker: AAPU) seeks daily investment results, before fees and expenses, of 200% of the performance of Apple Inc. common stock, while the Direxion Daily AAPL Bear 1X Shares (Ticker: AAPD) seeks daily investment results, before fees and expenses, of the inverse (or opposite) of the performance of Apple Inc. common stock.
The Direxion Daily NVDA Bull 2X Shares (Ticker: NVDU) seeks daily investment results, before fees and expenses, of 200% of the performance of NVIDIA Corporation common stock, while the Direxion Daily NVDA Bear 1X Shares (Ticker: NVDD) seeks daily investment results, before fees and expenses, of the inverse (or opposite) of the performance of NVIDIA Corporation common stock.
The Direxion Daily AMZN Bull 2X Shares (Ticker: AMZU) seeks daily investment results, before fees and expenses, of 200% of the performance of Amazon.com, Inc. common stock, while the Direxion Daily AMZN Bear 1X Shares (Ticker: AMZD) seeks daily investment results, before fees and expenses, of the inverse (or opposite) of the performance of Amazon.com, Inc. common stock.
The Direxion Daily Technology Bull 3X Shares (Ticker: TECL) and Daily Technology Bear 3X Shares (Ticker: TECS), seek daily investment results, before fees and expenses, of 300%, or -300%, respectively, of the performance of the Technology Select Sector Index*.
*Definitions and Index Descriptions
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
The Technology Select Sector Index (IXTTR) is provided by S&P Dow Jones Indices and includes domestic companies from the technology sector which includes the following industries: computers and peripherals; software; diversified telecommunications services; communications equipment; semiconductors and semi-conductor equipment; internet software and services; IT services; electronic equipment, instruments and components; wireless telecommunication services; and office electronics.
The Funds have derived all disclosures contained in this document regarding Microsoft Corporation from publicly available documents. In connection with the offering of each Fund’s securities, neither the Funds, the Trust, nor the Adviser or any of its respective affiliates has participated in the preparation of such documents. Neither the Funds, the Trust nor the Adviser or any of its respective affiliates makes any representation that such publicly available documents or any other publicly available information regarding Microsoft Corporation is accurate or complete. Furthermore, the Funds cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price of Microsoft Corporation have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning Microsoft Corporation could affect the value of a Fund’s investments with respect to Microsoft Corporation and therefore the value of the Funds.
Technology Sector Risk — The market prices of technology related securities tend to exhibit a greater degree of market risk and sharp price fluctuations than other types of securities. These securities may fall in and out of favor with investors rapidly, which may cause sudden selling and dramatically lower market prices. Technology securities may be affected by intense competition, obsolescence of existing technology, general economic conditions and government regulation and may have limited product lines, markets, financial resources or personnel.
Microsoft Corporation Investing Risk — Microsoft Corporation faces risks associated with competition in the technology sector and among platform based ecosystems, including its cloud-based services; the evolution of its business, including the development of its new products and acquisitions, joint ventures and strategic alliances; cybersecurity, data privacy and platform abuses; significant investment may occur on products and services that do not achieve their expected results; operations, including excessive outages, data losses or disruptions of online services; quality or supply problems; legal, regulatory and litigation risks; and the ability to attract and retain talented employees.
Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with a Fund concentrating its investments in a particular security, industry, sector, or geographic region which can result in increased volatility. A Fund's investments in derivatives such as futures contracts and swaps may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments, including imperfect correlations with underlying investments or the Fund's other portfolio holdings, higher price volatility and lack of availability. As a result, the value of an investment in a Fund may change quickly and without warning. Risks of the Funds include Effects of Compounding and Market Volatility Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Microsoft Corporation Investing Risk, Market Risk, Industry Concentration Risk, Cash Transaction Risk, Indirect Investment Risk, and risks specific to the technology sector and internet company industry. Additional risks include, for the Direxion Daily MSFT Bull 2X Shares, Leverage Risk and Daily Correlation Risk, and for the Direxion Daily MSFT Bear 1X Shares, Shorting or Inverse Risk as well as Daily Inverse Correlation Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of the Funds.
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