What's in Store for Microsoft ETFs This Earnings Season?

Microsoft MSFT is set to release third-quarter 2024 results on Apr 25, after market close. It is worth taking a look at this leading software company’s fundamentals ahead of its results.

Microsoft has been caught in a spree of heavy technology sector sell-off in recent weeks, erasing most of its gains made this year. Still, it has risen 0.6% over the past three months, outperforming the industry’s average growth by a narrow margin of 10 bps. There might be more gains in store if MSFT comes up with an earnings beat. ETFs, having double-digit exposure to this software leader, are in focus currently (read: 5 ETFs Leading the Tech Rebound: Will the Rally Continue?).

These are Select Sector SPDR Technology ETF XLK, MSCI Information Technology Index ETF FTEC, iShares Global Tech ETF IXN, Vanguard Information Technology ETF VGT and iShares Dow Jones US Technology ETF IYW.

Earnings Whispers

Microsoft has an Earnings ESP of -3.36% and a Zacks Rank #4 (Sell). According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

This software maker witnessed a negative earnings estimate revision of 3 cents over the past 30 days for the third quarter of fiscal 2024. However, Microsoft’s earnings surprise history is good, as it delivered an earnings surprise of 8.82%, on average, in the last four quarters. The company is expected to post substantial earnings and revenue growth of 14.7% each for the to-be-reported quarter.

Microsoft currently has an average brokerage recommendation (ABR) of 1.13 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 38 brokerage firms. Of the 38 recommendations deriving the current ABR, 34 are Strong Buy and three are Buy. Strong Buy and Buy, respectively, account for 89.47% and 7.89% of all recommendations. The ABR has not changed from a month ago.

Based on short-term price targets offered by 35 analysts, the average price target for Microsoft comes to $458.77. The forecasts range from a low of $298.10 to a high of $600.00. The average price target represents an increase of 13% from the last closing price of $407.57.

MSFT has a top Momentum Score of A but falls under a bottom-ranked Zacks industry (bottom 38%).

What’s Next?

The world’s largest software maker is optimistic about the long-term prospects of its Azure business. Azure has become Microsoft’s key growth engine in recent years and has helped revive the company’s brand among developers.

Microsoft expects revenues of $60-$61 billion for fiscal third-quarter 2024. Demand for generative AI will continue to fuel Microsoft's cloud business. Microsoft can monetize AI-related revenues quicker than any other cloud/software provider, especially with its OpenAI partnership.

In a recent development, the company announced a $1.1 billion spending commitment from Coca-Cola as part of a five-year strategic partnership focusing on cloud and AI technologies.

The company also introduced an artificial intelligence assistant, Microsoft Copilot for Security, which has been a universally accessible tool since Apr 1. This generative AI assistant is designed to support security and IT professionals in safeguarding their operations against cyber threats by leveraging a vast database of threat intelligence. Offering custom insights and action recommendations, Copilot for Security is capable of handling prompts and delivering responses in eight languages, with a multilingual interface accommodating 25 languages. This innovation is seen as a significant growth driver for Microsoft, especially within its cybersecurity segment (read: 5 ETFs to Tap Microsoft's Strength).

Investors should note that Microsoft overtook Apple AAPL in January to become the world's most valuable company and now has a market capitalization of more than $3 trillion.

ETFs in Focus

Select Sector SPDR Technology ETF (XLK)

Select Sector SPDR Technology ETF is the most popular and liquid ETF in the technology space, with AUM of $60.4 billion and an average daily volume of 6.6 million shares. It offers broad exposure to the technology sector and follows the Technology Select Sector Index. Select Sector SPDR Technology ETF holds about 65 securities in its basket, with Microsoft occupying the top position at 23.51%.

Select Sector SPDR Technology ETF charges 9 bps in fees per year from investors and has a Zacks ETF Rank #1 with a Medium risk outlook (read: Make Your ETF Portfolio AI-Rich in Buffett-Like Manner).

MSCI Information Technology Index ETF (FTEC)

MSCI Information Technology Index ETF is home to 303 technology stocks with AUM of $8.8 billion. It follows the MSCI USA IMI Information Technology Index. Microsoft is the top firm with an 18.3% allocation.

MSCI Information Technology Index ETF has 0.08% in expense ratio, while volume is solid at 252,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook.

iShares Global Tech ETF (IXN)

iShares Global Tech ETF provides exposure to electronics, computer software and hardware, and informational technology companies by tracking the S&P Global 1200 Information Technology 4.5/22.5/45 Capped Index. Holding 117 stocks in its basket, Microsoft occupies the top spot with a 20.2% share.

iShares Global Tech ETF has amassed $4.1 billion in its asset base and trades in a good volume of 202,000 shares a day, on average. The expense ratio is 0.41%.

Vanguard Information Technology ETF (VGT)

Vanguard Information Technology ETF manages about $62 billion in its asset base and provides exposure to 313 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT occupies the top position with an 18.3% share.

Vanguard Information Technology ETF has 0.10% in expense ratio, while volume is solid at nearly 406,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook.

iShares U.S. Technology ETF (IYW)

iShares U.S. Technology ETF provides exposure to U.S. electronics, computer software and hardware, and informational technology companies. It tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, holding 131 securities in its basket. Of these, Microsoft occupies the top position in the basket, with 18.6% of the assets.

iShares Dow Jones US Technology ETF has AUM of $15.4 billion and charges 40 bps in fees and expenses. Volume is good as it exchanges nearly 864,000 shares a day. IYW has a Zacks ETF Rank #1 with a Medium risk outlook.

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Microsoft Corporation (MSFT) : Free Stock Analysis Report

Technology Select Sector SPDR ETF (XLK): ETF Research Reports

Fidelity MSCI Information Technology Index ETF (FTEC): ETF Research Reports

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Vanguard Information Technology ETF (VGT): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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