Cloudy with a Chance of Profits: Microsoft's Q4 Earnings Story

Has Microsoft’s stellar earnings report been overshadowed by slowing Azure growth? Danielle Shay, VP of Options, identifies potential trade setups. 

Microsoft’s latest quarterly earnings report brought both good and bad news. While the company exceeded Wall Street’s predictions for quarterly profits and revenues, it also reported a worrying trend – Azure, its cloud computing service, is growing at a slower rate.

After the report, Microsoft’s stock dropped about 4% in after-hours trading on Tuesday. This happened despite reporting a 26% increase in year-on-year cloud services revenue growth. The catch? This growth was down 1 percentage point from the previous quarter.

This decline in Azure’s growth is not a recent issue. It has been decreasing every quarter since at least Q3 2022. Although Microsoft executives predict a 25% to 26% growth rate for Azure in the present quarter, they couldn’t clearly answer when asked if this decline in growth had reached its lowest point.

During all of this, Microsoft CEO, Satya Nadella, remains optimistic. He spoke about the early stages of cloud migration and how there is still a lot to expect from it. He also mentioned how artificial intelligence is paving the way for new tasks, and expressed excitement about the future of this segment.

Looking at the numbers, Microsoft saw an 8% increase in overall revenue in the fourth quarter, reaching $56.2 billion. The company’s net income for the same period rose 20% to $20.1 billion, or $2.69 per share, exceeding analysts’ estimates.

Breaking down by business segments, revenue from Productivity and Business Processes increased by 10%, More Personal Computing revenue decreased by 4%, and Intelligent Cloud revenue, primarily from Azure, increased by 15%. But on the annual scale, Microsoft’s growth rate for fiscal year 2023 was the slowest it’s been since 2017.

Analysts suggest that Azure’s slower growth could be due to businesses taking time to fine-tune their cloud expenses. This is not all bad news, though, as it suggests a careful consideration of long-term cloud investments.

On another front, Microsoft has seen a surge in its stock, which has jumped more than 43% this year. This surge is largely due to their recent advancements in AI. Their latest AI product, Copilot, has been well-received by Wall Street. But don’t expect it to boost revenue overnight. As Microsoft’s CFO, Amy Hood, pointed out, revenue from AI services will increase gradually.

As for the upcoming acquisition of Activicon Blizzard, it’s an important step for Microsoft, but it wasn’t included in their 2024 forecast. Even so, CEO Satya Nadella confirmed that things are moving along as planned. He emphasized Microsoft’s dedication to expanding their gaming content.

How Are We Trading MSFT? 

In light of the Q4 earnings release, Danielle Shay, VP of Options and earnings specialist, offers some strategic insights on trading Microsoft (MSFT) shares post-earnings. Shay has identified a bullish setup on the daily chart, where MSFT has retraced to the 50 SMA (Simple Moving Average) and landed on Fibonacci support. Moreover, a daily squeeze has been observed, and Shay notes that historically, MSFT tends to ascend during the 8 trading days following earnings.

Check out Danielle’s Earnings Hot Zone Indicator for more incredible setups. 

However, not all signals are bullish. Shay indicates the TurboVZO, a volume flow metric, is trending downward, posing a potential red flag. For her, the ideal scenario includes the TurboVZO breaking through the yellow zone, signifying an inflow of bullish volume.

To tactically approach this trade, Shay delineates a support zone at $335 and a secondary support zone at $329.84. Should the stock dip below $329, her post-earnings buying plan would be deemed untenable.

Shay, armed with years of trading wisdom, has already traded a iron condor, yielding a 15% overnight gain. She’s also keeping tabs on a more aggressive bullish butterfly strategy. However, she advises waiting for buy triggers on the 30-minute chart, where signs of a bullish entry emerge before executing the trade.

In essence, while Danielle presents a cautiously optimistic perspective on a post-earnings trading situation for MSFT, she emphasizes the importance of closely observing vital technical indicators and being prepared to adapt the trading strategy as required.

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