Wall Street stocks closed mixed on Monday as benchmark U.S. Treasury yields backed down from 5% and investors shifted their focus to this week's high profile earnings and closely watched economic data.
Earnings season continues to capture the spotlight, with several big tech companies slated to take center stage this week. The period has primarily been positive so far, again helping us elude an ‘earnings meltdown’ many had feare
Inflation numbers are turning out to be more stubborn than most investors thought, and in turn, the US Federal Reserve is keeping its “Hawkish” stance, meaning higher rates for longer. Meanwhile, the War in Ukraine drags on, while
Global hedge funds reduced their exposure to mega cap tech stocks in recent days, ahead of the companies' third-quarter earnings, two Wall Street banks said.
Wall Street stocks edged higher on Monday as benchmark U.S. Treasury yields backed down from 5% and investors shifted their focus to this week's high profile earnings and closely watched economic data.
Tech stocks were higher Monday afternoon, with the Technology Select Sector SPDR Fund (XLK) rising 0.8% and the Philadelphia Semiconductor index up 0.7%.
The benchmark U.S. Treasury yield pulled back after crossing 5%, a 16-year high, on Monday, helping stocks rebound slightly, as oil slipped on continued turmoil around the Israel and Hamas conflict.
Want to start the week ahead of the pack? Check out Momentum Mondays, where I cover the leading breakout stocks in the market, summarize the major events of the week ahead, and prepare investors for profitable trading.
Despite delivering year-to-date gains of 38%, it hasn’t all been smooth sailing recently for
Microsoft (
NASDAQ:MSFT)
. Shares fell after the June quarter earnings release in July, partly on fears of decelerating cloud growth and a disappointing revenue guide. Additionally, investors have been cautious due to the company's substantial investments in AI infrastructure in anticipation of upcoming product releases. To illustrate, Microsoft's 10-K filing revealed a year-over-year increase of $22 billion in purchase commitments.
However, Piper Sandler analyst Brett Bracelin advises investors to consider the bigger picture. More specifically, looking ahead to the rest of the year, the analyst warns investors to “not sleep on” a recovery for the non-cloud business in the December quarter.
Bracelin highlights the fact his bullish thesis on Microsoft has been supported by the significant shift towards a cloud-based model in the past ten years. Nonetheless, he advises against overlooking the non-cloud segments, which generated $100 billion in revenue last year. These segments may seem less exciting, but they could still play a significant role in shaping the company's growth prospects for the December quarter.
As such, even taking into account little to no improvement in Microsoft Cloud (53% of sales) in the face of “optimization headwinds,” driven by a non-cloud recovery (representing 47% of sales), Bracelin sees the “potential for MSFT to guide to a slight improvement in core growth” in the December quarter.
Furthermore, the additional feedback received on AI tool Copilot during the Envision London event on October 18
th, solidifies Bracelin’s “bullish view” that Microsoft is in a strong position to leverage its first-mover advantage in AI. “We recommend large-cap growth investors add to MSFT positions ahead of the M365 Copilot GA release on November 1st marking the next stage of a promising AI journey,” the analyst summed up.
As such, Bracelin has named MSFT his 'highest conviction idea into year-end,' rating the stock as Overweight (i.e. Buy) with a $400 price target. This implies ~21% upside from current levels for investors. (To watch Bracelin’s track record,
click here)
Overall, the Street is coming down with the bulls on Microsoft shares. MSFT has 36 recent analyst reviews, breaking down 32 to 4 in favor of Buys over Holds for a Strong Buy consensus rating. The $398.28 average target closely resembles Bracelin’s objective. (See
Microsoft stock forecast
)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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