Microsoft – Is the Earnings Beat a Dip-Buying Opportunity?
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Shares of Microsoft Corporation have been on the retreat over the past couple of weeks despite a strong start to the year. However, the company’s latest earnings report showed some encouraging signs with respect to future growth.
Artificial Intelligence Drives Cloud Growth
Microsoft’s third quarter fiscal results came in above estimates and showed 17% revenue growth year-over-year on the quarter. For a company of their size and magnitude, these results are very impressive, especially when considering the economic principle of diminishing returns to scale*.
CFO Amy Hood stated that near-term artificial intelligence (AI) demand was actually exceeding the company’s capacity, and that major capital investments are being made in order to bring the organization up to speed.
At the end of the day, we believe this may translate into more sales and earnings in time. Azure and other cloud services revenue grew 31% in the quarter, exceeding analyst estimates of 28.6% growth.
Traders that think artificial intelligence and cloud services can continue to grow Microsoft’s top and bottom lines could find a trade 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 April 25, 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.
What if the Growth is Priced in?
Despite the strong near-term results, Hood did caution listeners that fourth quarter fiscal revenue could come in lower compared to previous estimates. If so, this could create a scenario where some of the company’s future growth may have already been incorporated into the stock price’s recent performance.
Then of course, we just had a Q1 gross domestic product (GDP)* report that showed the economy grew slower than expected. A revision will be issued on May 30, and if the updated report confirms that the economy is underperforming, it could highlight underlying recession risks in this market.
In this scenario, 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).
*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 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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