Microsoft (MSFT) Up 54% YTD: Will the Rally Continue in 2022?
Microsoft (MSFT) had a good run this year driven by momentum in Azure and Teams App. The stock is well-poised to rally in 2022 on solid growth prospects.
Microsoft MSFT stock has outperformed the Zacks Computer – Software industry as well as S&P 500 in the year-to-date (YTD) period. The stock has gained 53.9% so far this year, while the Computer – Software and benchmark index have increased 40.8% and 28.6%, respectively.
The price rally reflects the company’s robust fundamentals. If you haven’t taken advantage of the share-price appreciation yet, it’s time you add the stock to your portfolio now.
The company has performed brilliantly this year and has the potential to carry on the momentum in 2022 as well.
What’s Driving Microsoft Stock Higher?
Microsoft is benefiting from strong demand for its Azure cloud platform amid rapid digital transformation undertaken by enterprises globally.
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The increasing migration of workloads to the cloud will fuel demand for cloud infrastructure monitoring, web-based application performance management and human capital management solutions. This bodes well for Microsoft’s cloud service.
In the last reported quarter, Azure and other cloud services’ revenues surged 50% year over year (up 48% at constant currency). The upside was driven by robust growth in consumption-based business.
Azure’s increased availability in more than 60 announced regions worldwide is anticipated to have bolstered its cloud business and strengthened its competitive position in the cloud space.
Microsoft is gaining from an expanding user base of different applications, including Microsoft 365 and Teams. Teams continues to witness record adoption. The uptick can be attributed to the continuation of the work-from-home trend and mainstream adoption of hybrid work policies. The company noted that Microsoft Teams has 138 customers with more than 100,000 users of Teams and more than 3,000 clients with over 10,000 users in the last reported quarter.
The company’s LinkedIn business and the gaming segment are also performing impressively. The company’s Gaming segment is benefiting from the launch of the latest Xbox consoles. LinkedIn’s performance is being driven by strength in Marketing solutions and Talent Solutions along with an improvement in the job market scenario.
A healthy uptick witnessed in the Microsoft Power Platform is another factor adding to the top line performance. Power platform, the company’s next-generation business process automation platform, reported a monthly active user base of 20 million, up 76% year over year in the last reported quarter.
Moreover, as per Reuters, Microsoft recently received unconditional antitrust approval by the European Commission for the buyout of Nuance Communications. The planned takeover of Nuance Communications is likely to enahnce Microsoft’s position in the rewarding healthcare sector. The software giant noted that the takeover is anticipated to increase the company’s total addressable market in the healthcare space to $500 billion.
Nuance Communication offers pioneering conversational Artificial Intelligence (AI) tools to boost business productivity. In April 2021, Microsoft had announced the takeover of Nuance Communications for $19.7 billion (including net debt) in an all-cash deal.
Solid Growth Expectations
The Zacks Consensus Estimate of $9.13 for fiscal 2022 earnings suggests growth of approximately 14.6% from the year-ago period’s levels. The long-term earnings per share growth rate is estimated to be 12%.
Microsoft has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 14.8%.
Zacks Rank and Other Stocks to Consider
Currently, Microsoft carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader technology sector include Arrow Electronics ARW, Cirrus Logic CRUS and Alphabet GOOGL. While Arrow Electronics and Cirrus Logic sport a Zacks Rank #1 (Strong Buy), Alphabet carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
For Arrow Electronics, the Zacks Consensus Estimate for 2021 earnings is pegged at $14.60 per share, up 8.2% in the past 60 days. The long-term earnings growth rate of the company is pegged at 27.4%.
Arrow Electronics’ earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 18.6%. Shares of the company have rallied 38% year to date.
The Zacks Consensus Estimate for Cirrus Logic's fiscal 2022 earnings is pegged at $5.37 per share, up 7.6% in the past 60 days. The long-term earnings growth rate of the company is pegged at 9.3%.
Cirrus Logics’ earnings beat the Zacks Consensus Estimate in three of the preceding four quarters, the average surprise being 14.9%. Shares of the company have increased 13.3% year to date.
The Zacks Consensus Estimate for Alphabet’s 2021 earnings is pegged at $108.29 per share, up 0.8% in the past 60 days. The long-term earnings growth rate of the company is pegged at 25.8%.
Alphabet’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 41.5%. Shares of the company have surged 68.8% year to date.
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