2022/03/07 (014) Technical Analysis – MSFT

MSFT a long-term conservativ tech basic investment?
„If the market creates a W trend reversal formation into this summer,
we should get a massive buy signal generated by autumn 2022 at the latest!


Microsoft completes acquisition of Nuance Communications
Microsoft’s takeover of Nuance Communications has received comparatively little media attention, despite being the second-largest takeover in the company’s history – at least until the Activision deal is through. Nuance was taken over for $56 per share, which corresponds to a total volume of $19.7 billion. Only for LinkedIn did Microsoft pay even more, at $26.2 billion. Subject to regulatory approvals, Activision is paying nearly $69 billion, more than the two previous record acquisitions combined. A deal of this magnitude has to overcome various bureaucratic hurdles, which is why it has taken almost eleven months since the announcement in April 2021 until everything was in place. Redmond reported completion on Friday. Specializing in speech recognition services with over 13,000 employees, Nuance is best known to end users for its Dragon NaturallySpeaking software, which has been on the market for 25 years. In the meantime, however, this is more of a by-product. In recent years, Nuance has specialized in artificial intelligence and has won numerous customers with its language services, especially in the healthcare sector. The latter should remain a focus in the future, although the acquired expertise should flow into all Microsoft products that have something to do with language.

Microsoft: Strength through diversity

One important lesson we learned from the pandemic is that there’s strength in diversity. The accelerating adoption of all things digital was a boon to cloud computing businesses, while many consumer-centric businesses suffered. As the economy began to reopen, however, the reverse proved true: Investors flocked to “reopening” stocks, largely at the expense of many cloud-centric stocks. Yet through it all, Microsoft has thrived.

To give this context, since the start of the pandemic, Microsoft’s market cap has ballooned from $1.4 trillion to $2.25 trillion, second only to Apple’s $2.7 trillion. So why has Mr. Softy done so well, even as other companies have struggled? The wide-ranging scope of its tech businesses has acted as a buoy and helped insulate the tech giant from the wild stock price gyrations that are an everyday occurrence in the current market environment.
Over the past couple of years, the company has reported surprise contributions from LinkedIn social media, search advertising, and even Xbox gaming, helping illustrate the diversity of its business. In the fourth quarter, revenue of $51.7 billion grew 20% year over year, led by the intelligent cloud segment, which grew 26%, while productivity and business jumped 19% and more personal computing climbed 15%. That’s an impressive performance, particularly considering the massive size of Microsoft’s operations. While growth of that magnitude might be reason enough to invest in Microsoft shares, there’s also the matter of the income it provides to investors. The company boasts a profit margin of more than 38%, and its weighty net income fuels its ever-growing dividend, which has increased by more than 200% over the past decade. Microsoft also boasts a payout ratio of just 24%, meaning this income stream will be secure even if times get tough. The dividend yield is an admittedly low 0.84%, but the stock has returned an impressive 62% over the past two years and more than 800% over the past decade – not bad for a dividend stock.

Basic developments during todays trading session – to put MSFT trading capability in the right context

Investors have virtually priced out the chances of a hefty 50 basis point rate hike in March, giving a lift to the technology and growth stocks that had been pummeled in recent weeks by anticipation of harsh Fed tightening. Among those, shares of software company Adobe (ADBE.O) was up over 5% since last week, with Microsoft (MSFT.O) up over 3% in the same period. “The stock market has been buoyed by expectations for a less aggressive Fed and lower yields in aggregate. The threat of higher interest rates has receded somewhat,” said Brad Neuman, director of market strategy at Alger. The impact of moderating yields has been evident below the market’s surface. Since the day before Russia launched its invasion last week, the S&P 500 growth index (.IGX), replete with longer-duration stocks heavily pressured by higher yields, has climbed 2.6% against a 2.3% rise for the counterpart value index (.IVX). That spread narrowed on Friday as the broad market fell. Meanwhile, geopolitical concerns have propelled oil prices, prompting fears of slower growth and higher inflation over the long term. U.S. crude prices topped $115 a barrel this week and hit their highest levels since 2008, while other commodities such as wheat also surged.

All in all, it seems like that in the next days the MSFT share could create something like a 2nd technical leg – to create a swing trend-reversal formation! That´s the 1st goal of this trading capability, for the next days. And or maybe next week! However, we`ll see…