Microsoft has experienced a bout of fatigue lately on the stock market, disappointing equity investors on its outlook. Over the past ten years, the growth of the American software giant founded by Bill Gates has been generated by a single vector: the transition from the sale of licenses to rental (we observe the same phenomenon at Adobe). “By doing this, you roughly double your revenue per user. During the few years that your users are transitioning to the new model, you are seeing great growth. But once the last user has “switched”, you don’t have much left to display,” said Charles Monot, founder of Monocle Asset Management, interviewed by Capital. This was the case with Microsoft in 2019.
The Covid-19 “came at the right time to disrupt this situation: everyone equipped themselves to work from home, so Microsoft “entered” customers in two years that it would normally have returned in much longer. But the consequence of this “boom” is today’s air pocket”, notes the expert. Now that everyone is equipped, no one needs new equipment. Hence the poor results of Logitech, Intel, and the weak growth of Microsoft displayed in its latest results.
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In the middle of all this, there remains the performance of the clouds, with continued growth. However, Charles Monot says he is “doubtful” about the real margins of this sector. “The third player (Google) tells us every quarter that it is losing money on its cloud business. I would be surprised if the other players (Microsoft and Amazon) manage to gain a lot where Google loses, especially on a B-to-B activity (business-to-business or business-to-business)”, quipped the asset manager.
Microsoft “is paying dearly on the stock market today, because the market is looking at the fine growth in results and profits in recent years”. But it’s profit growth on coming years which is important. And Charles Monot doubts that this is sufficient to justify the current valuation of the action on the stock market.
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What does technical analysis say?
Microsoft has been trying to stabilize on the stock market for several months. From the point of view oftechnical analysis (graphical analysis of price action, mathematical indicators, etc.), the action rebounded from the major support zone of $212-216 (classic Fibonacci retracement of 61.8% of the rally initiated in 2020, in particular ) and on the 200-week moving average (lower blue curve), which acts as a dynamic ascending support.
The fact remains that for the time being, the medium-term dynamic remains bearish, the action remaining within a bearish channel, the upper limit of which coincides with the 50-week moving average (downward blue curve), which plays the role of dynamic bearish resistance. The action would have to clearly overflow (and at the end of the session – or better, at the end of the weekend) this bearish double-hurdle to send an encouraging signal.
How to take advantage of stock market opportunities
momentum, Capital’s premium stock exchange investment letter and newsletter has been – wisely – cautious on Microsoft stock so far. And we remain so today, despite some positive signs recently noted on the Nasdaq (but it still remains to “transform the test”, from the point of view of technical analysis).
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Microsoft “is expensive, profits may disappoint”: stock market advice