What do Q3 earnings hold for Microsoft’s stock? – Stock Markets
Microsoft earnings to be released after market close on October 24
Both earnings and revenue expected to jump on an annual basis
Valuation remains stretched against its tech peers
Microsoft has fared relatively well in 2023 amid a broader tech rally driven by the Artificial Intelligence (AI) hype. The second most valuable publicly traded company in the world is considered to be the leader in the AI race due to its close partnership with OpenAI, ChatGPT’s parent.
![](https://www.xm.com/wp-content/uploads/2023/10/Microsoft-Performance.png)
Besides that, Microsoft has taken actions to diversify its income stream, with its investments in intelligent Cloud and Azure segments attempting to offset the pullback in consumer spending towards its personal computing and gaming consoles products. Therefore, in the Q3 earnings call, investor attention is likely to fall on how the firm’s secondary segments have performed as well as on the guidance for future AI projects.
Meanwhile, in October, Microsoft completed the long-anticipated $69 billion takeover of Activision Blizzard. Although this might be the biggest deal in the gaming industry and solidifies Microsoft’s diversification plan, its financial benefits will be evident from the next earnings report.
Poised for solid fundamentalsMicrosoft is set to post a strong third quarter financial performance despite the weakness in its flagship personal computing division. The latter is forecast to extend its streak of contracting quarters, with analysts projecting a 3.86% drop on an annual basis. However, a 16% growth in the same time horizon for the Intelligent Cloud segment is anticipated to save the day.
Overall, the software giant is projected to report revenue of $54.49 billion, according to consensus estimates by Refinitiv IBES, which would represent a year-on-year growth of 8.73%. Earnings per share (EPS) are estimated to jump to $2.65, producing an increase of 12.82% compared to the same quarter a year ago.
Meanwhile, investors will be closely eyeing the firm’s profit margins, which are projected to decline slightly due to higher capital expenditure for the research and development of new products in the AI field.
Valuation looks pricey against benchmarksFrom a valuation perspective, Microsoft appears to be trading with a premium against its major tech competitors, which could have two different interpretations. On the one hand, investors might be confident that the firm has an edge regarding the adoption of AI technology relative to its peers, but it could also mean that the share price is currently overvalued.
![](https://www.xm.com/wp-content/uploads/2023/10/Microsoft-Valuation.png)
Specifically, its forward 12-month P/E ratio is currently at 28.3x, with most of its major competitors and relative benchmarks retaining significantly lower figures. This aggressive pricing opens the door for significant downside in the case that Microsoft fails to live up to its expectations within the AI sector.
In Microsoft’s defence though, it is clear that the valuation has corrected from its 2020-2021 exorbitant levels, with the forward P/E ratio hovering around its five-year average.
Key technical levels to watchIn 2023, Microsoft’s stock surged to a fresh all-time high of $367.00 before experiencing a pullback alongside broader stock markets. In the near-term, the price remains supported by the 50-day simple moving average (SMA) ahead of the Q3 earnings report.
![](https://www.xm.com/wp-content/uploads/2023/10/Microsoft-TA.png)
To the upside, upbeat financials could propel the price towards the September high of $341.00. Even higher, the June peak of $351.00 could be targeted.
Alternatively, should earnings disappoint, the price could descend towards the September low of $310.00. A violation of that zone could open the door for the $295.00 hurdle.Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.