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Microsoft Beats Estimates as Earnings Season Heats Up

Microsoft Beats Estimates as Earnings Season Heats Up

Earnings season is here, and the U.S. stock market relies heavily on the tech sector and other mega-caps for broader gains 

On Tuesday, Microsoft reported better-than-expected earnings and revenue for the fiscal second quarter, while other major tech companies will report holiday-quarter earnings over the next few days.

The stock market has witnessed selling pressure after it emerged that the Federal Reserve is expected to raise interest rates sooner and more frequently than earlier anticipated, sparking a broad sell-off  in the tech sector.

Expectations of rising interest rates have sent investors fleeing from tech companies toward less-risky investments, most notably, insurance and finance.

All that has combined to make technology the worst-performing sector in the S&P 500 this year. Since its peak late last year, it has fallen more than 11%. So far this year, the best performing sectors are energy, financial services and consumer staples.

According to FactSet data, the tech sector is expected to report 16.1% revenue growth for CY 2021, better than the S&P 500 average growth of 15.8% over the timeframe.

Microsoft’s fiscal Q2 earnings and revenue for the fiscal second quarter showed $18.8 billion or $2.48 per share, versus $2.31 per share as expected by analysts. The company earned $51.73 billion in revenue vs. $50.88 billion as expected by analysts.

Revenue increased by 20% from a year earlier, compared with almost 22% growth in the previous quarter

Microsoft has seen continued strong growth Azure, its flagship cloud division, reporting 46% revenue growth for the segment. 

Productivity and business processes division revenues rose 19% to $15.9 billion, while Intelligent Cloud revenues were up 26% to $18.3 billion, and More Personal Computing revenues rose 15% to $17.4 billion 

The company’s shares fell nearly 5% after hours only to bounce back after it provided a forecast for the fiscal third quarter that also beat estimates.

Chief Financial Officer Amy Hood expects fiscal third-quarter revenue of $48.5 billion to $49.3 billion, topping the average analyst consensus of $48.11 billion.

Year-to-date, Microsoft’s stock was down 12.7% as of midday Tuesday, while the broader S&P 500 was down 7.5%.

Amazon, Microsoft’s biggest cloud rival, is down more than 15.4% year-to-date, and is expected to report Q4 2021 earnings on February 3rd 

Wall Street analysts expect Amazon to report revenue of $137.7 billion and earnings per share of $3.74. 

Meanwhile, thanks to its higher hiring costs the guidance for operating income is between $0 and $3 billion, a significant drop from $6.9 billion in Q4 2020.

However, JPMorgan's Doug Anmuth is still bullish on it, rating the stock as a strong buy with a $4,350 price target, which would imply an upside of 43%.

Apple Inc. is expected to report Q1 2022 earnings on Jan. 27, 2022 after the market closes. The company has a consensus ESP forecast of $1.89.

It is expected to see revenue growth in the single digits at around 6.5%, while earnings will grow about 12.5%. 

For the previous earnings report, Apple revenue fell short of expectations which Apple CEO Tim Cook attributed to larger-than-expected supply constraints. Yet, the company's overall revenue was still up 29% on an annual basis. However, recently Apple's supply chain pressures are easing.

Alphabet Inc. (NASDAQ: GOOG) is scheduled to report Q4 2021 earnings on February 1st before the market opens. The company has a consensus ESP forecast of $27.65. The company’s

shares gained over 65% last year, beating the Nasdaq 27% rise by more than double. Revenues are expected to be $59.32 billion, up 27.8% from the year-ago quarter.

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