A high-potential stock with weaknesses in the last two quarters
Microsoft MSFT should publish its Q2 FY23 earnings on Tuesday, January 24, after the market. Most analysts do not have positive expectations, but since analysts and the company have repeatedly cut their estimates, they may be able to outperform weak expectations.
Wall Street and Zacks Investment Research both expect $2.30 Earnings per share on revenue of $53 billion. Last quarter reported $2.48 earnings per share on $51.73 billion in revenue.
Layoff in tech companies was one of the main concerns over past quarters. In total, technology companies fired more than 150,000 employees last year. Microsoft recently announced that it would reduce its global headcount by 10,000 employees, which means a $1.2 billion saving coats in its fiscal second quarter, to raise the earnings by 12 cents per share. However, it also can hurt the company's activities and revenue, but it will be apparent in the next season. However, Microsoft has a strong balance sheet with roughly $100 billion in cash reserves and another $75 billion in annual operating cash flow. It can assure most investors that they have enough funds to invest in new projects.
MSFT missed just one in the past four quarterly reports, so it only misses an estimate since 2016. Q4 FY22 earnings were their first miss since 2016. However, the worrying thing is that in Q1 FY23, Microsoft had the slightest revenue beat since 2018. Also, as mentioned earlier, analysts and the company several times revised their estimates lower in the past three months. These changes tell us that possible beating in this quarter can also be challenging, so buying the MFST stocks is a less suitable choice. During 2022, MFST's stock price lost 22% of its value. However, this relative pessimism is for the short term as its growth potential can always ensure investors' long-term outlook.
Microsoft has a variety of services, products, and subsidiary companies, including hardware, Windows OS, Office, gaming, Teams, Claude, OpenAI, and their ChatGPT product. With their recent investments, now MFST made a $29 billion investment in the artificial intelligence research company.
Though Cloud computing is not moving as well as before, it has a great outlook. In Q1 FY23, its Cloud business had grown 24%, which is fine, even if it was less than the 36% growth of the previous year.
Overall company sales and growth combined with the slowing of the US and global economy, especially in recent quarters, can encourage that with better global economic growth, they also can use their potential to move forwards.
From the technical point of view, MSFT has strong support at $213. Trading above $213 supports the bulls, with the first resistance at $264. Breaching under the mentioned key support also can change the price movement direction towards the next support at $195, which is less likely.