BY MARK SEBASTIAN
February 16, 2024
Each week, my team will give an overview of a stock. I’ll discuss fundamentals, Licia will analyze the charts, and AG will break down the volatility.
Have a stock YOU want us to review? Email my team here. – Mark
Microsoft Corp (Ticker: MSFT)
Microsoft is the largest company in the world … .Normally this mantle belongs to companies that are tried and true and produce consistent cash flows…nothing to argue here. MSFT has been a top 5 valuation name for decades.
But at 3 trillion dollars is the company worth it…it is sporting a pretty aggressive price earnings ratio based on a trailing twelve months of almost 37.
But that doesn’t tell the whole story. Smartly this company got in bed with Chat GPT early and as you may have heard, this company is THE AI name that businesses and individuals are using alike…
To show you how good chat GPT is…here is its vision of why I should buy Microsoft:
ME: Why should I buy Microsoft stock?
ChatGPT:
I can provide you with some general information, but please note that investment decisions should be made based on your individual financial goals, risk tolerance, and thorough research.
Additionally, my knowledge was last updated in January 2022, and market conditions may have changed since then.
As of my last update, Microsoft (MSFT) was considered one of the largest and most well-established technology companies in the world. Here are some reasons why investors might consider buying Microsoft stock:
- Diversified Revenue Streams: Microsoft has a diverse range of products and services, including its Windows operating system, Office productivity suite, Azure cloud services, gaming (Xbox), and more. This diversity can help mitigate risks associated with dependence on a single product or market.
- Cloud Computing Growth: Microsoft’s Azure cloud computing platform has shown significant growth, competing with other major players like Amazon Web Services (AWS). The increasing demand for cloud services could continue to contribute positively to Microsoft’s revenue.
- Strong Financial Performance: Historically, Microsoft has demonstrated strong financial performance with consistent revenue and profit growth. The company’s financial stability and cash reserves may be attractive to investors.
- Innovation and Acquisitions: Microsoft has been active in innovation and strategic acquisitions. The company’s focus on emerging technologies and strategic investments in areas like artificial intelligence, augmented reality, and cybersecurity can contribute to future growth.
- Dividend Payments: Microsoft has a history of paying dividends, making it appealing to income-focused investors. The company has increased its dividend over time, providing potential income and demonstrating confidence in its financial health.
- Market Leadership: Microsoft is a market leader in several segments, including operating systems, productivity software, and cloud services. Market leadership can provide a competitive advantage and contribute to long-term success.
However, it’s crucial to be aware of potential risks and market conditions. Technology companies can be subject to rapid changes, regulatory challenges, and competitive pressures. Additionally, the stock market is inherently unpredictable, and past performance does not guarantee future results.
Before making any investment decisions, consider consulting with a financial advisor and conducting thorough research to understand the current market conditions and Microsoft’s specific situation at the time of your investment.
It’s pretty darn impressive right? It just did a bunch of research for me in about 5 seconds.
If I were to follow Open AI’s thoughts this is a slam dunk…but is AI all that is cracked up to be to warrant the huge PE Microsoft has?
I have to tell you it is unprecedented to have a 3 trillion dollar company have such a high PE…to justify this PE, if the stock does NOTHING, earnings need to increase by about 40-50%.
Is this a good company…yes…is it overbought…I believe it is.
Can MSFT Hold This Support?
MSFT has been in a tremendous rally since its lows just shy of $310 back on September 27th, which was a doji candle, I might add, that signaled this rally.
It has pulled back off its highs of $420.80 made just a few days ago which was signaled by a bearish engulfing candle created on February 12th.
I have two factors of support that MSFT is sitting on right now.
The 21 day moving average coming in at $406 and my pitchfork median line coming in at $404.34.
If MSFT does decide to hold this support there will be resistance from $410-$415 which is the area of the gap created on February 13th.
From there resistance will be the previous highs at $421.
If the stock closes below this support level, the next level of support is $395.50 and then $388.
Looking at the weekly chart, MSFT seems to be forming a bearish engulfing candle:
Of course we need Friday to play out to complete this bearish signaling candle.
Which is perfect for our OP Live Monday show.
-Licia
MSFT is the most valuable company in the world
The Option Pit Glossary is here if you have any questions about a term.
What goes with a $3 trillion market cap? Really low implied volatility that is what. And after nearly 30% straight up in 3 months to the Mega Cap stratosphere that is some cheap options prices. MSFT is a growth company but even great companies get over stretched from time to time. I would at lowing longer term options, 60 days and out in the form of a calendar.
MSFT is in that low realized, low implied volatility state that begs for longer term option buying.
I am looking at put calendars here. Let’s see what Monday brings.
-AG
The Option Pit Team…
P.S. To see the live show every Monday at 10:30 just sign up for any paid service here at Option Pit... or call 888) 872 3301.
Questions about anything? Leave a comment below!
Mark Sebastian
Founder & CEO, Option Pit
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Hey Trader,
Out of the Triumvirate of stocks NVDA has earnings next week which eliminates it as something we would want to trade…but META and MSFT…they are through earnings…both reported great earnings although META clearly took off in a stronger manager.
That said, Microsoft is currently the largest company in the world based on the strong rally it has had…let’s break this one down.