software giant Microsoft (MSFT) has been hailed for its successful transition from desktop to cloud computing. And MSFT’s stock increased accordingly. Many investors may be wondering: Are Microsoft shares a buy right now?
Bill Gates and Paul Allen started Microsoft in 1975 at the dawn of the personal computer era to create PC operating system software. The company’s Windows operating system came to dominate the PC landscape. Microsoft has expanded over the years into productivity software, server software, Internet services, video games, and PC hardware and accessories.
Current chief executive Satya Nadella took the helm of the Redmond, Washington-based company in 2014 and has led Microsoft full steam ahead in cloud computing.
The company’s cloud offerings today include Azure infrastructure services, Office 365 productivity software and Dynamics enterprise software. Microsoft also owns LinkedIn, Skype and GitHub.
MSFT Stock News: Metaverse Progress
Microsoft recently promoted the Metaverse, an immersive version of the next-generation Internet. It currently makes HoloLens mixed reality headsets for remote collaboration.
At CES 2022, chipmaker Qualcomm (QCOM) announced a partnership with Microsoft to develop lightweight augmented reality glasses.
At Microsoft’s Ignite 2021 online event on November 2, Microsoft showcased its latest innovations for the enterprise metaverse. They include Dynamics 365 Connected Spaces and Mesh for Microsoft Teams. Microsoft stock rose 1.1% after the announcements.
Cloud price increase, Windows 11
On August 19, Microsoft announced the first price increases for its Microsoft 365 and Office 365 commercial cloud product suites. Microsoft stock jumped 4.7% in two days on the news.
On July 14, Microsoft unveiled Windows 365, a service that brings its Windows operating system to the cloud. The sales department delivers the full Windows experience, including apps, data, and settings, to PCs and other devices. It also creates a new category of hybrid personal computing called Cloud PC, the company said. MSFT stock was up 0.5% that day.
On June 24, Microsoft introduced its Windows 11 personal computer operating system. Microsoft stock rose 0.5% on the news.
Windows 11 features a refreshed design with a new user interface and Start menu. It also provides PC performance improvements and integrates the Teams video conferencing application. Windows 11 is the successor to Windows 10, released in July 2015. Microsoft released Windows 11 on October 5.
In other news, Microsoft is working to close its $19.7 billion acquisition Communications Shades (NUAN). The acquisition of Nuance will give Microsoft more clout in the healthcare sector.
Microsoft follows Amazon in cloud computing
On July 6, the US Department of Defense canceled a major cloud computing contract it had awarded to Microsoft in October 2019. Microsoft was well ahead of Amazon.co.uk (AMZN) to win the contract known as JEDI, or Joint Enterprise Defense Infrastructure. But Amazon challenged the award of the $10 billion contract in court and delayed its implementation.
The Pentagon now plans to open a new contract, the Joint Warfighter Cloud Capability, to competition. The agency says it will solicit bids from Amazon and Microsoft for the contract.
Meanwhile, Microsoft is protesting the awarding of a $10 billion cloud contract to Amazon by the US National Security Agency. This NSA contract is codenamed WildAndStormy, according to media reports. Microsoft filed an administrative protest through the Government Accountability Office regarding the contract.
Amazon.com’s Amazon Web Services is the world’s largest provider of cloud infrastructure services. In the third quarter, AWS held 32% market share, according to research firm Canalys. Microsoft was in second place with 21% market share.
Other major cloud players include Alphabet (GOOGL) Google Cloud Platform, as well as the Chinese company Ali Baba (BABA) and Tencent (TCEHY). Overall enterprise spending on cloud infrastructure services reached $49.4 billion in the third quarter, up 35% year-over-year, Canalys said.
Fundamental Analysis of Microsoft Stocks
Late October 26, Microsoft released a beat and relaunch report for its fiscal first quarter ended September 30. Microsoft stock jumped 4.2% on the next day’s news.
Microsoft earned an adjusted $2.27 per share on sales of $45.3 billion in the September quarter. Wall Street had predicted Microsoft earnings of $2.08 a share on sales of $44 billion, according to FactSet. Year-over-year, Microsoft’s profits increased 25% while sales increased 22%.
The report marked the fifth consecutive quarter of accelerating sales growth for Microsoft.
Microsoft has seen a growth in digital transformation efforts from enterprise customers during the Covid-19 pandemic.
The next potential catalyst for Microsoft shares is the company’s second-quarter fiscal report on Jan. 25. Analysts expect Microsoft to earn $2.31 a share on sales of $50.6 billion in the December quarter, according to FactSet. This would translate to year-over-year growth of 14% in profits and 17% in sales.
MSFT Stock Technical Analysis
On Oct. 18, Microsoft stock hit a buy point of 305.94 on a flat basis, according to IBD MarketSmith charts.
This break followed a June 21 break when Microsoft stock hit a buy point of 263.29 on a cup basis.
Microsoft stocks have a decent IBD relative strength rating of 85 out of 99. The best growth stocks typically have RS ratings of at least 80. The relative strength rating shows how a stock’s price performance compares to all other actions over the past 52 weeks.
The IBD Stock Checkup tool assigns MSFT stocks an IBD composite rating of 83 out of 99. The IBD composite rating combines five separate proprietary rankings into one easy-to-use number. The best growth stocks have a composite rating of 90 or higher.
Microsoft ranks first out of eight stocks in IBD’s Computer Software-Desktop industry group. But the office software group ranks 188th out of 197 industry groups tracked by IBD. Choosing highly rated stocks of leading industry groups in a confirmed uptrend in the stock market generally increases your chances of making profits in growth stocks.
Microsoft stock is on IBD’s rankings list. He is also part of the IBD Long-Term Leaders portfolio.
Additionally, Microsoft ranked first on IBD’s list of ESG stocks for investors focused on environmental, social and governance issues.
Is Microsoft Stock a buy it now?
Microsoft stock is not a buy right now, but it could soon be. MSFT stock formed a flat base with a buy point of 349.77, according to charts from MarketSmith. However, it is trading near the bottom of its new base. Microsoft stock closed the regular January 14 session at 310.20.
In a negative sign, MSFT stock is trading below its 50-day moving average.
Additionally, Microsoft stock has the worst possible IBD accumulation/distribution rating of E. The rating, on a scale of A+ to E, measures a stock’s institutional buying and selling over the past 13 weeks. A+ means big institutional buys and E means big sells. The AC rating is average.
Keep an eye on the overall stock market. If the market is heading south, don’t try to fight the general direction of the stock market.
To find the best stocks to buy or watch, check out the IBD Stock Lists. Also check out IBD’s Leaderboard, MarketSmith and SwingTrader platforms.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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