the Dow Jones Industrial Average (DJINDICES: ^ DJI) It was up a modest 0.3% at 11:30 am EDT on Wednesday, outperforming the other major stock indices. Weighing in the market was a decision by the United States to force the closure of a Chinese consulate in Houston that prompted a threat of retaliation by China, increasing tensions between the two countries.
Actions of Microsoft (NASDAQ: MSFT) and International business machines (NYSE: IBM) it pushed higher on Wednesday, helping drive the Dow’s profit. Microsoft shares rose despite rival Slack filing an antitrust complaint in the EU, and IBM shares rose after an update from analysts.
Image source: Getty Images.
Microsoft hit with EU antitrust complaint
Microsoft has a great advantage in the collaboration software business: Microsoft Office. The company has a large base of business customers who are already paying for the iconic productivity suite, and the fastest way to drive new product adoption is to simply combine it with Word, Excel, and PowerPoint.
That’s exactly what Microsoft has done with Teams, its workplace messaging and video conferencing product that encompasses both. Loose (NYSE: JOB) and Focus. Business-directed Microsoft Office 365 subscriptions include access to Teams at no additional charge, creating a strong incentive for existing Office customers to choose Teams over alternatives.
Slack has a problem with this strategy. On Wednesday, Slack asked the European Union’s antitrust regulators to start an investigation into Microsoft, alleging that the tech giant is using its dominance in the productivity software market to power teams.
“Microsoft has illegally linked its Teams product to its market-dominant Office productivity suite, forcing it to install by the millions, blocking its removal and hiding the true cost to business customers,” Slack said in a press release announcing the complaint.
Admittedly, Microsoft is leveraging Office to drive Teams adoption. It is unclear whether that constitutes a violation of the EU antitrust law. EU antitrust regulators will review the complaint and determine if a formal investigation is necessary.
Microsoft shares did not react to the news on Wednesday, an increase of 0.9% late in the morning. The stock has shot up around 32% since the start of the year.
IBM gets post-earnings update
IBM’s second-quarter earnings report earlier this week beat analyst estimates overall, although both revenue and earnings declined as a result of the pandemic. The company showed solid growth in cloud computing, while its large service segments suffered declines.
On Wednesday, Argus updated the IBM shares waiting to buy and gave it a target price of $ 155. Argus analyst Jim Kelleher sees that IBM’s hybrid cloud business is accelerating, driven by the acquisition of Red Hat for $ 34 billion. IBM has only been able to include a portion of Red Hat’s revenue in its results since the acquisition closed due to deferred revenue accounting rules, but that headwind is fading.
Kelleher hopes that some of IBM’s legacy businesses will continue to offset growth in faster-growing areas, especially companies exposed to industries that were hit by the pandemic. In the second quarter, while the cognitive and cloud software segment managed to grow 5%, the service segments were hit by customers who declined in discretionary spending and lower volumes from “challenged industries.”
A value case can be made for IBM shares. While the company pulled its guidance this year due to the pandemic, it previously expected to produce adjusted earnings per share of at least $ 13.35. The current stock price is less than 10 times the previous earnings guide.
IBM shares rose 2.3% on Wednesday morning after the update. Shares of the tech giant have dropped approximately 6% to date.
