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Microsoft’s earnings set to fall


Microsoft will report its Q2 FY23 earnings after the US markets close on 24 January. The company’s share price is about 30% lower than its all-time high seen in November 2011 amid macro headwinds.

A growth slowdown in its core business Azure sparked concerns about how the software giant can weather the economic storm. The recent investment plan for OpenAI also brought uncertainties. Microsoft earnings are crucial for the US equity markets in terms of its dominant market cap and influence on the tech sector.

A lower profit margin is expected

Microsoft beat analysts’ expectations in its earnings results for Q1 FY23, with $2.35 in earnings per share (EPS) on $50.12 in revenue. The revenue for the September quarter has seen an 11% year-on-year growth. However, its net income fell by 14% due to weakened PC demands. The cloud business Azure’s revenue growth slowed to 35% after two consecutive 46% growth in the prior two quarters. In the upcoming earnings report, it is expected that Microsoft’s profit margin may decline further, and its revenue growth will slow to a half-decade low. The consensus calls for $2.3 for its earnings per share and $53 billion in revenue or a 9% year-on-year drop in EPS and only 2.4% in revenue growth annually.

Apart from growth hurdles, two other negative factors could affect Microsoft’s performance. One is that the company plans to cut 10,000 jobs, or nearly 5% of the company’s workforce, taking a $1.2 billion charge related to the layoff and affecting earnings by 12 cents per share.

Secondly, the company plans to invest another $10 billion in OpenAI with a 75% share of profits until it makes a full return on its investment. OpenAI is an artificial intelligence tool of Ghat GPT, which obtained more than 1 million users within days. The investment aims to enhance Microsoft’s competitiveness with its rivals, including Alphabet, Amazon, and Meta Platforms in the could business. However, the adventure is also risky for investors due to the considerable investment amount and ChatGPT is still in its early stage as its responses to search could be incorrect due to a lack of reliable sources, unlike Google or Bing.

Technical analysis

Source: CMC Markets as of 24 January

Microsoft has been moving under the descending trendline since the peak in November 2021, with a pivotal trendline resistance level of 245, confluence with the 100-day moving average and 23.60% of Fibonacci retracement. A bullish breakout of this level may take the share’s price to approach further resistance of 265, which is the high seen on 13 December. The directional bias is more bullish than bearish with the 50-day and the 100-day moving average forming a potential golden cross, while RSI ticks up.

On the flip side, a breakdown below the near-term support of 240 may take the share price to re-test the month low of 219.40. 

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