Microsoft ‘expensive, profits may disappoint’: stock advisory

Microsoft has been feeling lethargic in the stock market lately, disappointing stock investors with its outlook. Over the past decade, the growth of the American software giant founded by Bill Gates has been driven by one vector: the transition from selling licenses to renting (we’re seeing the same phenomenon at Adobe). “By doing this, you nearly double your revenue per user. Within a few years of your users switching to the new model, you see huge growth. But once the last user has ‘migrated’, you don’t have much to show,” said Charles Monocle, founder of Monocle Asset Management, in an interview with Monocle Capital. This is what happened to Microsoft in 2019.

Covid-19 “came at the right time to disrupt this situation: everyone equipped themselves to work from home, so Microsoft ‘returned’ customers for two years that would normally have taken longer. But the result of this ‘boom’ is today’s air pocket”. the expert notes. Now that everyone is equipped, no one needs new hardware. Thus, Logitech’s weak results, Intel’s poor development and Microsoft’s weak development are reflected in its latest results.


Microsoft enters the capital of the London Stock Exchange as part of a strategic partnership

In the middle of all this is always the performance of the cloud with growth. However, Charles Monot says he is “doubtful” of the sector’s real margins. “The third player (Google) tells us every quarter that it is losing money in the cloud business. I would be surprised if the other players (Microsoft and Amazon) can gain much where Google has lost, especially in B-to-B to business or business to business),” quipped the asset manager.

Microsoft is “overpaying in the stock market today because the market is looking at good results and profit growth in recent years.” But what is important is the increase in profits in the coming years. And Charles Monot doubts that’s enough to justify the stock’s current valuation on the stock market.


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What does technical analysis say?

Microsoft has been trying to stabilize the stock market for several months. In terms of technical analysis (graphical analysis of price action, mathematical indicators, etc.), the stock has bounced back from the key $212-216 support zone (the classic Fibonacci 61, 8% retracement of the rally that began in 2020, in particular) and as dynamic upper support in the 200-week moving average (lower blue curve) that is performing.

Microsoft: price evolution and technical analysis Equity (Investment Information)

The fact is that for now the medium-term dynamics remains downward, the movement remains within the lower channel, the upper limit of which coincides with the dynamic 50-week moving average (downward blue curve). bear resistance. In order to send an encouraging signal, the move had to clearly (and at the end of the session – or better yet, at the end of the weekend) clear this double hurdle.

How to take advantage of stock market opportunities

Momentum, Capital’s award-winning investment letter and stock newsletter, has so far been cautious on Microsoft stock. Despite some recent positive signs on the Nasdaq (but still needing to “retest” from a technical analysis perspective), we remain so for now.


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