After topping analyst estimates and offering bullish guidance, Microsoft has retaken one key moving average as it now looks to clear another. With the stock market indexes trying to rebound, the cloud computing giant earns a spot on IBD Leaderboard. Microsoft also joins fellow cloud-computing leader Alphabet on IBD Long-Term Leaders and the IBD 50.
In addition to those stock lists, MSFT stock and GOOGL stock also appear on a recent screen highlighting Warren Buffett stocks.
Although Microsoft needs more to establish a new buy point, it has retaken its 200-day moving average in good volume. The stock is now testing its 21-day line as it aims to recapture its 50-day benchmark.
Meanwhile, see if the market can flash a follow-through day to mark a new uptrend as MSFT and GOOGL look to set up new moves.
Microsoft Tops With Lift From Intelligent Cloud Business
In Microsoft's latest report for the quarter ended Dec. 31 (fiscal 2022 Q2), its Intelligent Cloud business generated $18.3 billion in revenue, an increase of 26%. The software giant's total revenue was $51.7 billion, a gain of 20% over the prior-year quarter.
Earnings growth for the quarter came in at 22%, bringing its average EPS gains over the last three quarters to just under 32%.
Fellow cloud computing giant Alphabet reports on Feb. 1. Analysts expect the search leader to post 44% earnings growth. Over the last three reported quarters, EPS growth has averaged 123%.
While both companies have an SMR Rating of A, Microsoft tops Alphabet when it comes to profit margins and return on equity. In their most recently reported full-year numbers, Microsoft scores a 46.6% annual ROE and a 42.3% annual pretax profit margin, easily topping Alphabet's 17.1% ROE and 23.6% profit margin.
Big-Game Buyout: Microsoft Buys Activision Blizzard
Earlier this month, Microsoft, which owns the Xbox brand, announced it will acquire leading video game play Activision Blizzard. On Jan. 21, ATVI stock popped over 21% on the news.
With the acquisition of Activision Blizzard's line-up of games, immersive interactive entertainment and publishing expertise, Microsoft will accelerate growth in its gaming business across mobile, PC, console and cloud.
In its news release, Microsoft noted that "with 3 billion people actively playing games today, gaming is now the largest and fastest-growing form of entertainment."
Microsoft will acquire Activision Blizzard for $95 per share. The all-cash transaction is valued at $68.7 billion, inclusive of Activision Blizzard's net cash. Bobby Kotick will continue to serve as CEO of Activision Blizzard.
MSFT Stock Regroups As Indexes Look To Rebound
Microsoft had been forming a flat base, but its recent decline means this chart pattern is no longer valid. With a positive earnings report behind it and bullish guidance, keep an eye on the relative strength line for Microsoft as well. An upward trending RS line, especially if it approaches a 52-week high, would show clear stock market leadership.
Look for both MSFT stock and GOOGL stock to find support and clear resistance at their most recent moving averages as another indicator of rebounding technical strength. Alphabet has kicked off the week by retaking its 200-day line.
Follow Matthew Galgani on Twitter at @IBD_MGalgani.
