The shares of companies in the technology industry suffered price slumps earlier this year as investors rotated away from expensive tech stocks to quality cyclical stocks to capitalize on the recovering economy. However, favorable macroeconomic trends and the Federal Reserve’s decision to keep benchmark interest rates near zero have been steering investors’ attention back towards quality tech stocks. This is evident in the tech-heavy Nasdaq Composite’s recent performance. The composite hit its 14,317.66 all-time high yesterday and has gained 5.8% over the past month.
Furthermore, increasing demand for advanced tech products and services amid accelerating digital transformation across industry should keep driving the growth of the technology sector. Indeed, according to GoRemotely, the U.S. tech industry is expected to hit a $5 trillion market value by year’s end.
Given the industry’s solid growth prospects, we think the shares of tech giants Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), and Facebook, Inc. (FB) could see a price breakout in the near term.
Microsoft Corporation (MSFT)
Tech giant MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. Its offerings range from Microsoft Teams, Office 365 Security and Compliance to Xbox hardware and Xbox content and services in the gaming segment. It has strategic collaborations with several companies, including DXC Technology (DXC), Dynatrace, Inc. (DT), Morgan Stanley (MS), and Micro Focus (MFGP).
On April 12, MSFT and Nuance Communications, Inc. (NUAN) entered an agreement under which MSFT will acquire NUAN. This is expected to help MSFT expand its product portfolio, combining solutions and expertise to deliver new cloud and AI capabilities across healthcare and other industries.
MSFT’s revenue increased 19% year-over-year to $41.70 billion for its fiscal third quarter, ended March 31, 2021. Its operating income grew 31% year-over-year to $17 billion. Its non-GAAP net income came in at $14.80 billion, which represents a 38% year-over-year increase. Its non-GAAP EPS was $1.95, up 39% year-over-year.
For its fiscal year 2021, analysts expect MSFT’s EPS to be $7.77, representing a 34.9% year-over-year increase. It surpassed consensus EPS estimates in each of the trailing four quarters. The company’s revenue is expected to increase 19.1% year-over-year to $42.54 billion for the quarter ending September 30, 2021. The stock has gained 32.4% over the past year to close yesterday’s trading session at $265.28, after hitting its 52-week high of $266.83.
MSFT’s POWR Ratings reflect solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. It has a B grade for Stability, Sentiment, and Quality.
Alphabet Inc. (GOOGL)
GOOGL provides online performance and brand advertising services. It operates through Google Services, Google Cloud, and Other Bets segments. Its Google Services segment provides products and services, technical infrastructure, and digital content. Its Google Cloud segment offers infrastructure and data analytics platforms and collaboration tools, and its Other Bets segment sells internet and TV services.
GOOGL announced an expanded relationship with Johnson Controls (JCI) on June 15 that will involve JCI running SAP’s Enterprise Resource Planning Central Component (ECC) environment on Google Cloud. This could expand GOOGL’s consumer base even further.
The company’s revenue surged 34% year-over-year to $55.31 billion for its fiscal first quarter, ended March 31, 2021. Its operating income grew 30% year-over-year to $16.44 billion. Its net income was $17.93 billion, which represents a 162.3% year-over-year increase. GOOGL’s EPS came in at $26.29, up 166.4% year-over-year.
The company’s EPS and revenue are expected to increase 89.6% and 46.3%, respectively, year-over-year to $19.21 and $56.02 billion for the current quarter, ending June 30, 2021. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 68.6% over the past year to close yesterday’s trading session at $2,442.54, after hitting its 52-week high of $2,461.91.
It’s no surprise that GOOGL has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Sentiment, and a B grade for Quality.
Facebook, Inc. (FB)
FB is one of the top players in the social media space. FB’s products enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and in-home devices worldwide. The company’s products include Facebook, Instagram, Messenger, and WhatsApp. It also provides Facebook Reality Labs, an augmented and virtual reality product.
On June 22, FB announced that it is building the world’s largest shoppable social media platform by improving and expanding GrokNet—a breakthrough product recognition system. This is expected to help the company expand its market reach in the shopping experiences domain.
FB’s revenue increased 48% year-over-year to $26.17 billion for the first quarter, ended March 31, 2021. Its income from operations grew 93% year-over-year to $11.38 billion. Its net income came in at $9.50 billion, which represents a 94% year-over-year increase. Its EPS came in at $3.30, up 93% year-over-year.
Analysts expect FB’s EPS and revenue to increase 67.8% and 59.9%, respectively, year-over-year to $3.02 and $27.82 billion. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained 41.7% over the past year to close yesterday’s trading session at $340.59, after hitting its 52-week high of $343.42.
FB’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The stock has an A grade for Quality, and a B grade for Sentiment.
Within the Internet industry, FB is ranked #6. To see the additional POWR Ratings for FB (Stability, Growth, Momentum, and Value), click here.
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MSFT shares were trading at $267.40 per share on Thursday afternoon, up $2.12 (+0.80%). Year-to-date, MSFT has gained 20.78%, versus a 14.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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