Microsoft Presents Strong Technical Performance Post-Earnings

In Q4 2024, Microsoft showcased solid financial performance, driven by significant growth in its cloud services and ongoing innovation across its diverse product offerings. The company achieved substantial year-over-year revenue and operating income increases, reflecting its ability to thrive amidst a competitive landscape.

As the company continues to expand its market presence and enhance its product portfolio, its financial health remains robust despite the challenges posed by competition and broader market uncertainties. This article presents Microsoft’s fundamental and technical performance to identify investment opportunities for long-term investors.

Financial Performance

Microsoft’s financial performance in Q4 2024 showed strong growth, driven by the strength of its cloud services and continued innovation across its product portfolio. The company reported a revenue of $64.73 billion, marking a 15% increase compared to last year. This impressive revenue growth was complemented by a 15% increase in operating income, which reached $27.9 billion.

As shown in the chart below, net income for the quarter stood at $22.04 billion. This reflects a 10% increase year-over-year. The chart below shows the consistent revenue and net income growth, highlighting Microsoft’s profitability. These results highlight Microsoft’s ability to maintain strong financial health amidst a competitive landscape.

The cornerstone of Microsoft’s success in this quarter was its cloud segment, with Microsoft Cloud revenue reaching $36.8 billion, up 21% from the previous year. This surge presents the growing demand for cloud services, particularly Azure, which saw revenue growth of 29%.

The Intelligent Cloud segment, which encompasses Azure and other server products, generated $28.5 billion in revenue, representing a 19% increase. This performance solidifies Microsoft’s position as a leader in the cloud computing industry, a market that continues to expand rapidly as businesses accelerate their digital transformations.

On the other hand, Productivity and Business Processes also contributed significantly to Microsoft’s strong quarterly performance, with a revenue increase of 11%, totaling $20.3 billion. Office 365 Commercial revenue rose by 13%, driven by the increasing adoption of cloud-based productivity solutions by enterprises worldwide. Additionally, Dynamics products and cloud services saw a 16% revenue growth, powered by a 19% increase in Dynamics 365 revenue. LinkedIn, another key segment component, reported a 10% revenue growth, reflecting its continued relevance as a professional networking platform.

The More Personal Computing segment, which includes Windows, devices, and gaming, reported a 14% revenue increase to $15.9 billion. This growth was notably driven by a 61% surge in Xbox content and services revenue, largely influenced by the recent acquisition of Activision.

Windows revenue also grew by 7%, supported by a 4% rise in Windows OEM revenue and an 11% increase in Windows Commercial products and cloud services. However, the Devices category saw an 11% decrease in revenue, highlighting the challenges in this segment amidst a shifting consumer landscape.

For the full fiscal year 2024, Microsoft reported a total revenue of $245.1 billion, reflecting a 16% increase. Operating income for the year was $109.4 billion, up 24%, while net income reached $88.1 billion, marking a 22% increase. Diluted earnings per share for the year were $11.80, up 22%.

These figures underscore Microsoft’s sustained financial growth, driven by its strategic focus on cloud services, AI innovation, and expanding its market presence across various sectors. The company also returned $8.4 billion to shareholders in Q4 through share repurchases and dividends, reaffirming its commitment to delivering value to its investors.

Earnings Impact on Stock Price

Microsoft’s stock price dropped after the earnings report due to significant price volatility, hitting the symmetrical broadening wedge support and initiating a strong rebound. The drop in price following the earnings report, followed by a strong recovery from the support, suggests that the stock may have found a bottom and could be poised for a strong rally.

This symmetrical broadening pattern has been developing since January 2024, with the price exhibiting significant fluctuations within this range. An attempt to break above the symmetrical broadening wedge failed in July 2024, leading to a correction towards the lower support of the wedge.

Overall, the weekly chart shows that the price has been trading within an ascending broadening wedge since 2019, forming an inverted head and shoulders pattern and a double bottom. These formations indicate that the price is likely to resolve to the upside after the consolidation within the symmetrical broadening wedge.

Microsoft Shows Signs of a Buy Opportunity

The chart below shows that Microsoft has been trading within a parabolic move since 2016. This parabolic move has formed an ascending broadening wedge pattern. Interestingly, the significant movement in Microsoft’s stock price began when it entered an overbought state. This suggests that buying interest continues to grow while the price may be overvalued.

The chart also illustrates that the Q4 2024 earnings report led to a sharp drop in the stock price, bringing it down to the red-dotted trendline, which emerged as a strong buy signal. This red dotted trendline is also supported by the symmetrical broadening wedge formation, indicating that the price is likely to continue rising or consolidate at higher levels.

The buying opportunity for Microsoft can be evaluated using the chart below, which shows that the peak in the stock price is still not confirmed, as August is a strong month, and the price is rebounding from a significant support area on both daily and weekly charts. The monthly chart indicates that if Microsoft fails to break above $467.50 and continues to decline from current levels, the price could find strong support between $341.51 and $292.96.

These two levels are crucial for Microsoft stock and offer a strong buying opportunity for long-term investors. The $341.51 level represents the peak from November 2021, while $292.96 corresponds to the 23.6% Fibonacci retracement of the overall parabolic move in Microsoft, measured from the 2009 low.

The analysis suggests that the support from the symmetrical broadening wedge and the red dotted support line indicate that the major peak in Microsoft stock is still not complete, and prices could rise further from current levels. Therefore, investors might consider buying at the current levels with a long-term perspective and continue to add more positions as the price potentially drops within the $292.96 to $341.51 range.

The Ripple Effect of Global Geopolitical Risks on Technology Stocks

The recent escalation in geopolitical tensions in the Middle East, combined with other global uncertainties, poses a significant risk to global markets, including the technology sector. For Microsoft, these risks could manifest in several ways. Increased volatility in global markets often leads to a risk-averse environment, where investors pull back from high-growth stocks like Microsoft and seek safer assets.

Additionally, heightened geopolitical risk could disrupt supply chains, especially in regions where Microsoft or its partners operate, leading to potential delays in product launches or increased costs. In such an environment, Microsoft’s stock price could experience downward pressure as investors reassess the risk-reward profile of holding tech stocks.

Furthermore, the global semiconductor industry, crucial for Microsoft’s hardware and cloud services, could be particularly vulnerable. The ongoing tensions between the U.S. and China, especially concerning Taiwan, a critical hub for semiconductor manufacturing, could lead to disruptions in the supply of chips.

If the situation worsens, it might result in shortages or higher prices for semiconductors, directly impacting Microsoft’s production costs and its ability to meet consumer demand. This would likely affect the company’s profit margins and could lead to a negative sentiment among investors, further pressuring the stock price.

Moreover, geopolitical risks could lead to broader economic consequences, such as increased inflation or slower global growth, negatively affecting consumer spending and business investment. As Microsoft relies heavily on enterprise and consumer spending for its cloud services, software, and hardware sales, any slowdown in global economic activity could translate into reduced revenue growth.

Additionally, if interest rates remain high or increase due to inflationary pressures, the valuation of high-growth stocks like Microsoft could come under scrutiny, leading to potential corrections in stock prices. While Microsoft remains a robust company, the elevated geopolitical risks could introduce significant headwinds that might affect its stock performance in the near term.

Bottom Line

In conclusion, Microsoft’s financial performance in Q4 2024 was marked by impressive growth, particularly in its cloud services, which solidified its leadership in the industry. The company demonstrated strong revenue and income increases across its key segments, underscoring its continued innovation and strategic focus on cloud and AI-driven solutions. Despite this, the stock faced volatility following the earnings report, with technical analysis suggesting potential buying opportunities at current levels.

However, global geopolitical risks, particularly in the technology sector, could pose challenges, potentially impacting Microsoft’s supply chain, costs, and overall market sentiment. Therefore, while Microsoft remains fundamentally strong, investors should consider both the opportunities and risks when assessing the stock’s future performance. A break above $467.50 will indicate that the stock price will likely go much higher, while a break below $386 may signal further downside toward the primary support levels.