Microsoft Stock is about to kick off with Beat Momentum earnings

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After being caught up in the tech stock meltdown that has hit the sector so far in 2022, Microsoft (NASDAQ:MSFT) stocks rally.

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Until Tuesday’s closing bell, MSFT stock was down 14% year-to-date. However, Microsoft released its second-quarter fiscal 2022 results on Tuesday evening. After a beating in earnings and revenue as well as better-than-expected forecasts, stocks started to rally. In the two days following the earnings, shares of MSFT jumped almost 4%.

Not a spectacular number, but for a tech stock in 2022? Not bad at all.

Does this short rally mean Microsoft stocks have momentum? After five years of strong growth, MFST stock had spat, but the strength of the company was on full display on Tuesday. Multiple strategies are paying off for the company – driven by strong growth in its cloud business – and they have plenty of room for growth.

Additionally, the company showed with its $68.7 billion deal to buy ActivisionBlizzard (NASDAQ:ATVI) that he’s not afraid to spend big to keep his momentum going. Here’s why I think MSFT is a strong candidate for inclusion in your portfolio.

Microsoft delivers second-quarter earnings pace

On Jan. 24, Microsoft released its fiscal 2022 second-quarter results. Wall Street was looking for revenue of $50.88 billion and adjusted earnings of $2.31 per share. Instead, Microsoft reported revenue of $51.7 billion. This was up 20% year-over-year and was led by Microsoft Cloud revenue which grew 32% year-over-year to $22.1 billion. Earnings per share of $2.48 also significantly exceeded projections.

Microsoft doesn’t see its business slowing down anytime soon. The company’s chief financial officer noted that demand remains strong and said MSFT expects third-quarter revenue of between $48.5 billion and $49.3 billion. Once again, that exceeded Wall Street expectations, which predicted revenue of $48.23 billion.

While MSFT stock initially fell sharply the day after the earnings report, it quickly rallied to end the day on a positive note.

Microsoft’s massive cloud business has plenty of room to grow

Microsoft’s cloud business is becoming a growth engine for the company. The good news is that there is still plenty of growth potential, although the landscape is competitive.

The global cloud computing market is expected to grow from $445.3 billion in 2021 to $947.3 billion in 2026. That’s a CAGR of 16.3%. In addition, Microsoft’s share in the global cloud computing market has increased. While market leader AWS has held steady at 32% of the market since late 2017, Microsoft Azure has increased its market share from 13.7% to 21%.

Game growth, the metaverse awaits

Adding to Microsoft’s growth story is the company’s Xbox games division. The Xbox Series X/S has been largely overtaken by the PlayStation 5 so far in this generation. However, Microsoft continues to dominate online and subscription gaming with services like Xbox Live and Xbox Game Pass.

Additionally, the company continues to grow its stable of game development studios. In 2021, it completed the $7.5 billion acquisition of ZeniMax Media, which brought Bethesda Softworks under the Xbox umbrella. This month’s announcement that Microsoft is buying Activision Blizzard in a $68.7 billion deal would make Microsoft the third-largest games company in the world.

These purchases allow Microsoft to add popular games like Bethesda’s Fallout series to Xbox Game Pass. The same will likely be true with ATVI titles like Call of Duty. This increases subscription revenue. Microsoft could also choose to make new Xbox-exclusive titles. Both strategies help to entice gamers to buy an Xbox instead of a PlayStation. MSFT is playing the long game here.

Microsoft also sees the purchase of Activision Blizzard as a key part of the metaverse. ATVI games like World of Warcraft have huge communities of online gamers that interact in what is arguably a metaverse platform. Gaming and the metaverse are both long-term growth opportunities for Microsoft and for MSFT stocks.

Don’t forget the hardware

Let’s not forget Microsoft’s Surface hardware. The slowest-growing division of MSFT, Surface hardware still managed 8% year-over-year revenue growth for the quarter.

Microsoft has tried using its own custom-designed chips in several Surface devices. This offers great benefits in feature optimization – something that Apple (NASDAQ:AAPL) made a big impact with its M1-series MacBooks. Microsoft is rumored to be considering giving up Intel (NASDAQ:INTC) in favor of custom chips for its next generation of Surface devices.

This would give Surface laptops a distinct advantage over other Windows PCs. Combined with a global PC market that has shifted into growth mode over the past two years, such a move could allow Microsoft to boost Surface revenue performance.

Conclusion on MSFT shares

MSFT shares currently earn a “B” rating in Portfolio Grader. It’s a pretty solid choice for investors who focus on long-term growth stocks, as the company’s latest results showed. Among analysts polled by The Wall Street Journal, optimism for MSFT is near universal. Three of the current 44 analysts have MSFT shares rated as “held” versus 35 “bought” and six “overweight.” Their 12-month average price target is $369.58, offering almost 25% upside.

If you already have Microsoft stocks in your portfolio, keep them. If you’re looking to add MSFT stock, there’s no better time than the present.

As of the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier has held (neither directly nor indirectly) any other position in the securities mentioned in this article. The InvestorPlace research staff member primarily responsible for this article has not held (directly or indirectly) any position in the securities mentioned in this article.

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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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