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Microsoft Q2 Earnings: cloud computing expected to fuel continued revenue growth

Microsoft will post Q2 results this week, with analysts tipping growing but slowing top line growth in Q2.

When does Microsoft (MSFT) report earnings?

Microsoft will deliver results for Q2 after market on January 25, 2022.

Microsoft earnings – what to expect

The company is expected to deliver another robust top-line result in the second quarter, driven by continued growth in cloud computing. Analyst consensus estimate is for revenues for the quarter to top $US50.8 billion, up from $US43.0B a year ago, as businesses accelerate their transition to the cloud. Although this would mark a deceleration in growth, which in part reflects disruptions brought about by the pandemic with travel, hospitality and tourism sectors weighing on demand for Microsoft products and services. Even still, the growth in sales is expected to drive a 14% increase in earnings, with consensus EPS forecasts for the quarter at around $2.29 per share.

The growth outlook will of course dominate this quarter’s earnings call, as analysts forecast strong but slowing EPS into 2022. On top of that, the acquisition of Activision and the companies deeper foray into gaming will garner focus, especially after a drop in Microsoft share’s following the hefty premium the company paid for the video game publisher.

Microsoft earnings – valuation, broker views and sentiment

There remains a broad-based bullishness towards Microsoft shares. Even in light of the recent plunge in the company’s share price, as fears surrounding aggressive US Federal Reserve policy drives re-ratings across equity markets, consensus price target remains around $370 per share with a “buy” rating. This includes 20 “strong buy” recommendations, 23 buy recommendations, 3 hold recommendations and no sell recommendations. IG clients are also similarly bullish the stocks, with 95% long.

Microsoft earnings – technical analysis

The technicals look weak for Microsoft currently, as the company shares come under selling pressure as investors dump stocks on fears for tighter global monetary policy. A steep rise in US Treasury yields to kick off 2022 has put particular pressure on growth stocks, with higher risk free rates compressing Microsoft’s valuation. Trend line support from the start of the pandemic has broken now, and the weekly RSI is at its lowest level since April 2020 as momentum shifts to the downside. Price eyes the 50-week moving average now, and technical support just above $US275 per share. Technical resistance might be found at previous support and now resistance at $US295.

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