Markets rewarded investors who bet that Microsoft (NASDAQ:MSFT) would beat expectations in its quarterly report. Still, MSFT stock backed down from its 50-day moving average when the Nasdaq Composite Index sold off. What did markets like about Microsoft’s quarter? At today’s prices, is MSFT stock worth buying now?
On April 27, Microsoft posted third-quarter generally accepted accounting principles (GAAP) earnings a share of $2.22. Revenue rose by 18.5% year-on-year (YOY) to $49.4 billion. The company’s impressive growth in the Intelligent Cloud segment failed to stop speculators from taking profits. This is the nature of a bear market. No matter how strong Microsoft shared in its earnings report, the stock has limited short-term upside. Patient investors will treat the market’s volatility as an opportunity.
Microsoft shares are a buy on weakness. The macroeconomic climate is worsening. The Federal Reserve will likely force a recession to slow inflation rates. Despite that bleak economic backdrop, Microsoft has seen, and should continue to see, durable growth. For example, it has Software-as-a-Service (SaaS) applications in the commercial cloud. Its competitive products face minimal competition. Corporate customers still need a hybrid work environment. They will continue to buy Microsoft’s Azure and Office 365 products. This lowers their technology infrastructure costs and increases efficiency. In addition, Microsoft’s CEO, Satya Nadella said that the total addressable market (TAM) would double by the end of the decade.
In April, IDC reported that PC shipments started slowing, following two years of strong growth. This scared investors. It led to a sell-off in shares of Intel (NASDAQ:INTC), Advanced Micro Devices (NASDAQ:AMD), and Micron Technology (NASDAQ:MU). I am confident that the markets are overreacting. The near-term slowdown is temporary. Yes, China has shut down Shanghai, a major port city, for over a month. So, for now at least, customers cannot buy many PCs in volume due to the supply disruption. But China will eventually ease restrictions once it believes that it has Covid-19 infection rates under control. The supply shortage will end. Customers will not have to wait too long to refresh their PC hardware. Thus, a rejuvenated PC market is another catalyst that will lift Microsoft’s profits and its share price.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.