the Dow Jones Industrial Average (DJINDICES: ^ DJI) It was lower at lunchtime on Thursday, down 0.3% at 11:55 am EDT. Congress is slowly moving toward another stimulus package to support the economy amid the pandemic, but the recent spike in COVID-19 cases is starting to show up in the numbers. Initial jobless claims for the week ending July 18 reached 1.42 million, marking the first increase since March.
Tech giant stocks Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL) They were downstairs on Thursday. Microsoft beat revenue and profit estimates when it reported the results on Wednesday night, but that was not enough to push the stock higher. Meanwhile, an analyst warned investors to avoid Apple’s shares ahead of its report next week.
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Solid earnings are not enough for Microsoft
The pandemic continues to help rather than harm Microsoft’s business. Fourth quarter tax revenue of $ 38 billion increased 13% year-over-year and $ 1.48 billion above analyst estimates. The smart cloud segment, which houses the company’s Azure cloud platform, increased revenue by 17%. The more personal computing segment, which includes Windows, Surface hardware, and games, saw revenue growth of 14%.
Earnings per share hit $ 1.46, up 7% year-over-year on an adjusted basis and $ 0.09 better than analysts expected. Microsoft incurred some extraordinary costs during the quarter, specifically a $ 450 million charge related to the permanent closure of its physical stores.
The gaming and Surface businesses were particularly strong, which is not surprising given the home stay orders that were in effect for part of Microsoft’s quarter. Xbox content and services revenue increased 65%, and Surface revenue increased 28%.
Despite the increase in earnings, Microsoft shares fell 1.8% late on Thursday morning. The company guided productivity and business process revenue for the first quarter between $ 11.65 billion and $ 11.9 billion, slightly below analyst estimates. The guidance for its other segments was in line with expectations.
While the guidance may be part of the reason Microsoft shares fell on Thursday, the valuation may also be playing a role. Microsoft’s shares have increased this year despite the pandemic, more than 30%. The stock is trading at a free price cash flow ratio of around 37, the highest since the aftermath of the dot-com bubble in the early 2000s.
The pandemic has not derailed Microsoft until now, but a long recession would surely harm some of the company’s segments. Business customers who backslide on IT spending, lay off employees, or fail directly would pressure Microsoft’s sales. Demand for PCs has been strong in recent months, fueled by more work from home, but that trend is unlikely to last if the economy does not recover quickly.
With Microsoft’s shares close to all-time highs, investors may not be held responsible for the risks facing the company.
Analyst warns of Apple stock
Apple shares also fell on Thursday, down 1.6% in the late morning. One reason for the decline: Goldman Sachs He called the stock price “unsustainable” after a strong rebound this year.
Goldman recommended that investors avoid Apple shares, predicting that earnings will be well below analyst expectations. Goldman expects earnings for the 2021 calendar year to be 16% below analyst estimates, driven by slowing growth in unit sales and average selling prices.
Apple is expected to launch iPhones with 5G technology later this year, although the jury still doesn’t know how strong the demand for expensive new devices will be in the current economic environment. Goldman does not expect Apple to provide any guidance when reporting its latest results. While Goldman is pessimistic about the stock, it raised its price target from $ 263 to $ 299.
Like Microsoft, Apple is highly valued despite the great uncertainty facing the company. The free cash flow-price ratio is around 26, the highest in at least a decade. Apple’s growth prospects are almost certainly worse today than they were 10 years ago.
Apple will report its third quarter fiscal results on July 30 after the market closes.
