The Fed’s plans to raise interest rates aggressively this year to combat high inflation have invited a massive sell-off in the tech industry. Furthermore, tech companies have been suffering from a global shortage in semiconductors for quite some time.
However, strong corporate earnings enabled the tech-heavy Nasdaq Composite to rally 3.1% yesterday after declining to its lowest since 2020. On the bright side, consumers’ growing reliance on tech products in their daily lives, along with an increased focus on domestic production and substantial corporate and government investments in the industry, should keep driving the industry’s growth.
Broad market reach and growing demand position shares of tech giants Microsoft Corporation (MSFT) and Alphabet Inc. (GOOGL) well for dodging the market’s volatility and delivering solid returns in the near term. So, we think it would be wise to bet on these stocks now.
Microsoft Corporation (MSFT)
MSFT in Redmond, Wash., develops, supports, licenses, and sells various software products, services, and solutions worldwide. The company also manufactures and sells PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories through OEMs, distributors, resellers, digital marketplaces, and retail stores.
On April 25, 2022, Mastercard Inc. (MA), in collaboration with MSFT, announced the launch of an enhanced identity solution designed to improve the online shopping experience. MA enhanced its Digital Transaction Insights solution with next-generation authentication and real-time decision-making intelligence capabilities to tackle digital fraud amid rising online shopping. This should help MSFT nurture its long-standing relationship with MA.
For its fiscal year 2022 third quarter, ended March 31, 2022, MSFT’s total revenue increased 18.4% year-over-year to $49.36 billion. The company’s gross profit came in at $33.75 billion, representing a 17.7% rise from the prior-year period. MSFT’s operating income was $20.36 billion, up 19.4% from the year-ago period. While its net income increased 8.2% year-over-year to $16.73 billion, its EPS increased 9.4% to $2.22. As of March 31, 2022, the company had $12.50 billion in cash and cash equivalents.
The consensus EPS estimate of $9.32 for its fiscal 2022, ending June 30, 2022, represents a 15.8% year-over-year improvement. It surpassed the consensus EPS estimates in each of the four trailing quarters. Analysts expect the company’s revenue to reach $199.30 billion for the same fiscal year, indicating an 18.6% rise from the prior-year period. MSFT’s EPS is expected to grow at a 16.2% rate per annum over the next five years. The stock has gained 5.7% in price over the past week and closed yesterday’s trading session at $289.63.
MSFT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Stability and Quality. Click here to see the additional ratings for MSFT’s Momentum, Growth, Value, and Sentiment. MSFT is ranked #11 of 60 stocks in the Software - Business industry.
Click here to check out our Software Industry Report for 2022
Alphabet Inc. (GOOGL)
GOOGL provides web-based search, maps, software applications, mobile OS, consumer content, enterprise solutions, commerce, and hardware products worldwide. The Mountain View, Calif., company operates through Google Services; Google Cloud; and Other Bets. It also provides performance and brand advertising services.
On March 8, 2022, GOOGL’s Google LLC technology company agreed to acquire Mandiant, Inc. (MNDT), a dynamic cyber defense and response leader, in a $5.4 billion all-cash transaction. As the need for advanced cybersecurity rises, MNDT’s acquisition should complement Google Cloud’s existing strengths in security and help organizations combat cybersecurity challenges.
For its fiscal year 2022 first quarter, ended March 31, 2022, GOOGL’s revenues increased 23% year-over-year to $68.01 billion. The company’s income from operations came in at $20.09 billion, representing a 22.3% rise from its year-ago period. It had $20.89 billion in cash and cash equivalents as of March 31, 2022.
Analysts expect the stock’s EPS to be $113.23 for its fiscal year 2022, ending Dec.31, 2022, representing a 0.9% rise from the prior-year quarter. The stock has surpassed the consensus EPS estimates in three of the trailing four quarters. The $299.86 billion consensus revenue estimate for the same fiscal year represents a 16.4% year-over-year improvement. GOOGL’s EPS is expected to grow at a 17.1% rate per annum over the next five years. The stock has declined 0.9% in price over the past week and ended yesterday’s trading session at $2370.45.
GOOGL’s POWR Ratings reflect its solid prospects. The stock has a B grade for Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for GOOGL’s Stability, Momentum, Growth, Value, and Sentiment here. GOOGL is ranked #8 of 72 stocks in the Internet industry.
MSFT shares were trading at $281.00 per share on Friday afternoon, down $8.63 (-2.98%). Year-to-date, MSFT has declined -16.28%, versus a -12.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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