CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.1% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

Tailwinds might lift Microsoft (MSFT) amid tech weakness

By Robert Davis

19:16, 24 January 2022

Microsoft word icon on screen
Photo: Shutterstock

American software behemoth Microsoft (MSFT) will report its second quarter earnings for fiscal year 2022 on Thursday amid ongoing weakness in the technology sector.

Some analysts are concerned about the company’s reported cash flow after it acquired Activision Blizzard (ATVI) last week as Microsoft expands its gaming portfolio and metaverse capabilities.

However, others say the company’s underlying growth strategy remains strong and expect tailwinds to catch the stock in early 2022.

Since the company last reported earnings on 26 October, the stock has lost more than 8% in value. For comparison, the broader Nasdaq 100 has fallen by 11%.

Microsoft was trading at $284.80 per share by 18:30 UTC on Monday, representing a drop of 3.3% on the day.

Activision deal

Microsoft purchased Activision Blizzard for just under $69bn (£51.22bn) in an all-cash transaction last week, a move many analysts applauded.

The merger made Microsoft the world’s third largest video game retailer behind Tencent and Sony. It also dramatically increased Microsoft’s video game portfolio with popular titles such as Call of Duty, Crash Bandicoot, and the Tony Hawk Pro Skater series.

But analyst Keith Bachman at the Bank of Montreal said in a recent note the deal could be bad news for the company’s short term cash flow, a number that is important to many tech investors.

The company’s inhibited cash flow could also prevent it from pursuing other mergers “at least for a period of time,” Bachman said.

TSLA

192.31 Price
-5.220% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 22:00 (UTC)
Spread 0.10

COIN

223.55 Price
+8.240% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 22:00 (UTC)
Spread 0.26

AMD

210.81 Price
+3.520% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 22:00 (UTC)
Spread 0.12

MARA

28.08 Price
+3.380% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 22:00 (UTC)
Spread 0.08

Bachman added his reservations about the deal stem from its potential to create “inorganic investing in other areas besides gaming.”

Bachman maintains his rating of “outperform” and set a price target of $360 per share, implying an upside of more than 20% from Monday’s price.

What is your sentiment on MSFT?

415.34
Bullish
or
Bearish
Vote to see Traders sentiment!

Solid strategy

To Wedbush analyst Daniel Ives, Microsoft’s underlying growth strategy and focus on cloud computing should propel the company forward despite the cash flow concerns expressed by Bachman and other analysts.

Specifically, Ives points to revenue growth in both of Microsoft’s Office 365 suite and its Azure products as reasons why investors should see the upcoming earnings report with some optimism.

Last quarter, the company reported revenue for Azure increased by 35% while its Office 365 products brought in 23% more revenue than a year prior, according to the company’s earnings report.

This time around, Ives expects these figures to increase to approximately 50% as the company has only penetrated approximately 35% of its overall cloud market.

Ives maintained his “outperform” rating and set a price target of $375 per share, implying an upside of nearly 25% from its price on Monday.

Read more: Microsoft awarded patent for Bitcoin ledger service

Markets in this article

MSFT
Microsoft Corp (Extended Hours)
415.34 USD
0.55 +0.130%
MSFT
Microsoft Corp (Extended Hours)
415.34 USD
0.55 +0.130%
MSFT
Microsoft Corp (Extended Hours)
415.34 USD
0.55 +0.130%

Related topics

Rate this article

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?

Join the 580.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading