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ETFs to Gain From Microsoft's AI Voice Provider Nuance Buyout
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Microsoft Corp. (MSFT - Free Report) has agreed to acquire artificial intelligence and speech technology company Nuance Communications Inc. for about $19.7 billion or $56.00 per share in an all-cash transaction. The deal reflects a premium of 23% to Nuance’s closing price of $45.58 as of Apr 9.
The acquisition would be the software leader’s second-largest ever, behind the $24-billion purchase of LinkedIn in 2016.
The acquisition of Nuance will expand Microsoft’s offerings in the healthcare and telecommunications sectors. This is because Nuance has a strong presence in the healthcare industry, and specializes in recognizing and processing speech. Microsoft has developed its own products for voice recognition in various use cases, and adding Nuance’s technology to its collection would be a great profitable expansion (read: Best ETF Investment Strategies for Q2 2021).
Per a Bloomberg Intelligence senior analyst, the deal can help Microsoft accelerate the digitization of the health-care industry, which has lagged other sectors such as retail and banking. The biggest near-term benefit is in the area of telehealth, where Nuance’s transcription product is currently being used with Microsoft Teams. According to the company, Nuance solutions are currently used in the United States by more than 55% physicians and 75% radiologists, and in 77% hospitals.
As such, the proposed acquisition would double Microsoft's total addressable market (TAM) in the healthcare provider space, taking the company's TAM in healthcare to nearly $500 billion. Further, it would also bolster Microsoft’s competitive edge in the AI space against rivals such as Alphabet Inc. (GOOGL - Free Report) and Amazon.com Inc (AMZN - Free Report) .
The deal, which is expected to close in the calendar year 2021, would be minimally dilutive (less than 1%) in fiscal year 2022 and accretive in fiscal year 2023 to non-GAAP earnings per share. The transaction is awaiting shareholder and regulatory approvals.
The deal comes within a few weeks of Microsoft’s discontinuation of voice assistant Cortana for iOS and Android users on Mar 31. The shutdown of the app was announced in July 2020, when Microsoft said it would be shifting toward a "transformational AI-powered assistant experience" in its Microsoft 365 apps, which would involve refocusing its "areas of innovation and development."
ETF Impact
The deal has put the spotlight on ETFs that could be the best ways for investors to tap the opportunity. Investors should keep a close eye on the movement of these ETFs.
This most-popular technology ETF follows the Technology Select Sector Index and has $39.8 billion in AUM. The fund charges 12 bps in fees per year from investors and trades in a heavy volume of around 9.2 million shares a day, on average. It holds about 74 securities in its basket, with Microsoft occupying the second position at 20.1%. XLK has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Time to Buy These Undervalued Tech ETFs on the Dip?).
This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 160 U.S. electronics, computer software and hardware, and informational technology companies. Of these, Microsoft occupies the second position in the basket with 17% of the assets. The fund has AUM of $7.2 billion and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 968,000 shares a day. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
This fund is home to 329 technology stocks with AUM of $5.6 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with 16% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 336,000 shares a day. It carries a Zacks ETF Rank #2 with a Medium risk outlook.
This fund manages about $43.3 billion in its asset base and provides exposure to 341 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT occupies the second position with 15.9% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 538,000 shares. It has a Zacks ETF Rank #2 with a Medium risk outlook.
This product provides exposure to electronics, computer software and hardware, and informational technology companies from around the world by tracking the S&P Global 1200 Information Technology Sector Index. Holding 127 stocks in its basket, Microsoft occupies the second spot with 15.7% share. The ETF has amassed $5.3 billion in its asset base but trades in a moderate volume of 76,000 shares a day on average. Expense ratio is 0.46%.
This is an active ETF, having accumulated $99.2 million in its asset base. It employs data science techniques to provide exposure to 242 technology stocks. Microsoft is the top firm with 15.7% allocation. IETC trades in a light volume of 19,000 shares and charges 18 bps in annual fees (read: Technology Regains Momentum: 5 ETFs Leading the Way).
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ETFs to Gain From Microsoft's AI Voice Provider Nuance Buyout
Microsoft Corp. (MSFT - Free Report) has agreed to acquire artificial intelligence and speech technology company Nuance Communications Inc. for about $19.7 billion or $56.00 per share in an all-cash transaction. The deal reflects a premium of 23% to Nuance’s closing price of $45.58 as of Apr 9.
The acquisition would be the software leader’s second-largest ever, behind the $24-billion purchase of LinkedIn in 2016.
The acquisition of Nuance will expand Microsoft’s offerings in the healthcare and telecommunications sectors. This is because Nuance has a strong presence in the healthcare industry, and specializes in recognizing and processing speech. Microsoft has developed its own products for voice recognition in various use cases, and adding Nuance’s technology to its collection would be a great profitable expansion (read: Best ETF Investment Strategies for Q2 2021).
Per a Bloomberg Intelligence senior analyst, the deal can help Microsoft accelerate the digitization of the health-care industry, which has lagged other sectors such as retail and banking. The biggest near-term benefit is in the area of telehealth, where Nuance’s transcription product is currently being used with Microsoft Teams. According to the company, Nuance solutions are currently used in the United States by more than 55% physicians and 75% radiologists, and in 77% hospitals.
As such, the proposed acquisition would double Microsoft's total addressable market (TAM) in the healthcare provider space, taking the company's TAM in healthcare to nearly $500 billion. Further, it would also bolster Microsoft’s competitive edge in the AI space against rivals such as Alphabet Inc. (GOOGL - Free Report) and Amazon.com Inc (AMZN - Free Report) .
The deal, which is expected to close in the calendar year 2021, would be minimally dilutive (less than 1%) in fiscal year 2022 and accretive in fiscal year 2023 to non-GAAP earnings per share. The transaction is awaiting shareholder and regulatory approvals.
The deal comes within a few weeks of Microsoft’s discontinuation of voice assistant Cortana for iOS and Android users on Mar 31. The shutdown of the app was announced in July 2020, when Microsoft said it would be shifting toward a "transformational AI-powered assistant experience" in its Microsoft 365 apps, which would involve refocusing its "areas of innovation and development."
ETF Impact
The deal has put the spotlight on ETFs that could be the best ways for investors to tap the opportunity. Investors should keep a close eye on the movement of these ETFs.
Select Sector SPDR Technology ETF (XLK - Free Report)
This most-popular technology ETF follows the Technology Select Sector Index and has $39.8 billion in AUM. The fund charges 12 bps in fees per year from investors and trades in a heavy volume of around 9.2 million shares a day, on average. It holds about 74 securities in its basket, with Microsoft occupying the second position at 20.1%. XLK has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Time to Buy These Undervalued Tech ETFs on the Dip?).
iShares Dow Jones US Technology ETF (IYW - Free Report)
This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 160 U.S. electronics, computer software and hardware, and informational technology companies. Of these, Microsoft occupies the second position in the basket with 17% of the assets. The fund has AUM of $7.2 billion and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 968,000 shares a day. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
MSCI Information Technology Index ETF (FTEC - Free Report)
This fund is home to 329 technology stocks with AUM of $5.6 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with 16% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 336,000 shares a day. It carries a Zacks ETF Rank #2 with a Medium risk outlook.
Vanguard Information Technology ETF (VGT - Free Report)
This fund manages about $43.3 billion in its asset base and provides exposure to 341 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT occupies the second position with 15.9% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 538,000 shares. It has a Zacks ETF Rank #2 with a Medium risk outlook.
iShares Global Tech ETF (IXN - Free Report)
This product provides exposure to electronics, computer software and hardware, and informational technology companies from around the world by tracking the S&P Global 1200 Information Technology Sector Index. Holding 127 stocks in its basket, Microsoft occupies the second spot with 15.7% share. The ETF has amassed $5.3 billion in its asset base but trades in a moderate volume of 76,000 shares a day on average. Expense ratio is 0.46%.
iShares Evolved U.S. Technology ETF (IETC - Free Report)
This is an active ETF, having accumulated $99.2 million in its asset base. It employs data science techniques to provide exposure to 242 technology stocks. Microsoft is the top firm with 15.7% allocation. IETC trades in a light volume of 19,000 shares and charges 18 bps in annual fees (read: Technology Regains Momentum: 5 ETFs Leading the Way).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>