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After the closing bell on Tuesday, the world's largest software maker Microsoft (MSFT - Free Report) delighted investors with better-than-expected fiscal third-quarter 2021 results. It continued a long track of beating earnings estimate and topped the revenue estimate driven by booming cloud-computing demand and video gaming sales (see: all the Technology ETFs here).
Earnings per share came in at $1.95, outpacing the Zacks Consensus Estimate by 19 cents and improving 39% from the year-ago quarter. Investors should note that Microsoft has not missed on quarterly earnings since third-quarter fiscal 2016. Revenues grew 19% year over year to $41.7 billion, topping the consensus estimate of $40.9 billion. This marks the biggest quarterly increase that the company has posted since 2018, per CNBC, thanks in part to PC sales growth resulting from coronavirus-driven shortages last year.
The surging market for PC drove revenues for the Windows operating system by 10% year over year. There is now more than 1.3 billion monthly active devices running the Windows 10 operating system (read: PC Sales See Best Growth in 2 Decades: Tech ETFs to Buy).
Growing demand for cloud computing services and software tools that support at-home workers led to the robust performance. Growth of the flagship Azure computing platform rose 50% in the fiscal third quarter, flat with the fiscal second quarter. Sales of Office 365 Commercial and Dynamic 365 climbed 22% and 45%, respectively. Microsoft’s gaming revenues jumped 50% year over year due to the continued momentum following the launch of the Xbox Series X and S last November.
During the earnings call, CEO Satya Nadella mentioned that Microsoft Teams reached 145 million daily active users, nearly double the 75 million daily active users reported last year. This indicates continued demand for videoconferencing and collaboration solutions that support remote work.
Despite the robust earnings result, shares of Microsoft dropped as much as 3% in after-market hours. The decline came on the back of investors’ skepticism over Azure growth, which was flat sequentially. While Azure has been growing steadily, it faces stiff competition from dominant Internet players like Amazon.com (AMZN - Free Report) and Alphabet (GOOGL - Free Report) .
However, the beaten down price seems an attractive entry point for investors as the stock currently has a Zacks Rank #2 (Buy) and is benefiting from the booming market for cloud computing and expanding business services such as its Teams collaboration service and LinkedIn social network. Additionally, Microsoft has become the world's second most valuable companies reaching near $2 trillion market cap in recent days, just behind Apple (AAPL - Free Report) .
ETFs to Buy
Investors seeking to invest in this software leader could tap ETFs with a lower level of risk. While there are several ETF options available, we have highlighted six with double-digit exposure to Microsoft that could be compelling choices (read: Big Tech Earnings Wave to Push Nasdaq ETFs Higher).
This most-popular technology ETF follows the Technology Select Sector Index and has $40.9 billion in AUM. The fund charges 12 bps in fees per year from investors and trades in heavy volume of around 9.2 million shares a day, on average. It holds about 75 securities in its basket, with Microsoft occupying the second position at 20.3%. XLK has a Zacks ETF Rank #2 with a Medium risk outlook.
This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 158 U.S. electronics, computer software and hardware, and informational technology companies. Of these, Microsoft occupies the second position in the basket with 17.2% of the assets. The fund has AUM of $7.4 billion and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 918,000 shares a day. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Tech ETFs Are Back in Momentum, Soar to All-Time High).
This fund manages about $44.9 billion in its asset base and provides exposure to 333 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT occupies the second position with 16.1% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 521,000 shares. It has a Zacks ETF Rank #2 with a Medium risk outlook.
This fund is home to 329 technology stocks with AUM of $5.7 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 346,000 shares a day. It carries a Zacks ETF Rank #2 with a Medium risk outlook.
This product provides exposure to electronics, computer software and hardware, and informational technology companies by tracking the S&P Global 1200 Information Technology Sector Index. Holding 128 stocks in its basket, Microsoft occupies the second spot with 15.8% share. The ETF has amassed $5.5 billion in its asset base and trades in good volume of 72,000 shares a day on average. Expense ratio is 0.46%.
This is an active ETF, having accumulated $102.1 million in its asset base. It employs data science techniques to provide exposure to 240 technology stocks. Microsoft is the top firm with 15.8% allocation. IETC trades in a light volume of 18,000 shares and charges 18 bps in annual fees.
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6 ETFs to Bet on Microsoft's Q3 Earnings Strength
After the closing bell on Tuesday, the world's largest software maker Microsoft (MSFT - Free Report) delighted investors with better-than-expected fiscal third-quarter 2021 results. It continued a long track of beating earnings estimate and topped the revenue estimate driven by booming cloud-computing demand and video gaming sales (see: all the Technology ETFs here).
Earnings per share came in at $1.95, outpacing the Zacks Consensus Estimate by 19 cents and improving 39% from the year-ago quarter. Investors should note that Microsoft has not missed on quarterly earnings since third-quarter fiscal 2016. Revenues grew 19% year over year to $41.7 billion, topping the consensus estimate of $40.9 billion. This marks the biggest quarterly increase that the company has posted since 2018, per CNBC, thanks in part to PC sales growth resulting from coronavirus-driven shortages last year.
The surging market for PC drove revenues for the Windows operating system by 10% year over year. There is now more than 1.3 billion monthly active devices running the Windows 10 operating system (read: PC Sales See Best Growth in 2 Decades: Tech ETFs to Buy).
Growing demand for cloud computing services and software tools that support at-home workers led to the robust performance. Growth of the flagship Azure computing platform rose 50% in the fiscal third quarter, flat with the fiscal second quarter. Sales of Office 365 Commercial and Dynamic 365 climbed 22% and 45%, respectively. Microsoft’s gaming revenues jumped 50% year over year due to the continued momentum following the launch of the Xbox Series X and S last November.
During the earnings call, CEO Satya Nadella mentioned that Microsoft Teams reached 145 million daily active users, nearly double the 75 million daily active users reported last year. This indicates continued demand for videoconferencing and collaboration solutions that support remote work.
Despite the robust earnings result, shares of Microsoft dropped as much as 3% in after-market hours. The decline came on the back of investors’ skepticism over Azure growth, which was flat sequentially. While Azure has been growing steadily, it faces stiff competition from dominant Internet players like Amazon.com (AMZN - Free Report) and Alphabet (GOOGL - Free Report) .
However, the beaten down price seems an attractive entry point for investors as the stock currently has a Zacks Rank #2 (Buy) and is benefiting from the booming market for cloud computing and expanding business services such as its Teams collaboration service and LinkedIn social network. Additionally, Microsoft has become the world's second most valuable companies reaching near $2 trillion market cap in recent days, just behind Apple (AAPL - Free Report) .
ETFs to Buy
Investors seeking to invest in this software leader could tap ETFs with a lower level of risk. While there are several ETF options available, we have highlighted six with double-digit exposure to Microsoft that could be compelling choices (read: Big Tech Earnings Wave to Push Nasdaq ETFs Higher).
Select Sector SPDR Technology ETF (XLK - Free Report)
This most-popular technology ETF follows the Technology Select Sector Index and has $40.9 billion in AUM. The fund charges 12 bps in fees per year from investors and trades in heavy volume of around 9.2 million shares a day, on average. It holds about 75 securities in its basket, with Microsoft occupying the second position at 20.3%. XLK has a Zacks ETF Rank #2 with a Medium risk outlook.
iShares Dow Jones US Technology ETF (IYW - Free Report)
This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 158 U.S. electronics, computer software and hardware, and informational technology companies. Of these, Microsoft occupies the second position in the basket with 17.2% of the assets. The fund has AUM of $7.4 billion and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 918,000 shares a day. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Tech ETFs Are Back in Momentum, Soar to All-Time High).
Vanguard Information Technology ETF (VGT - Free Report)
This fund manages about $44.9 billion in its asset base and provides exposure to 333 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT occupies the second position with 16.1% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 521,000 shares. It has a Zacks ETF Rank #2 with a Medium risk outlook.
MSCI Information Technology Index ETF (FTEC - Free Report)
This fund is home to 329 technology stocks with AUM of $5.7 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 346,000 shares a day. It carries 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 by tracking the S&P Global 1200 Information Technology Sector Index. Holding 128 stocks in its basket, Microsoft occupies the second spot with 15.8% share. The ETF has amassed $5.5 billion in its asset base and trades in good volume of 72,000 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 $102.1 million in its asset base. It employs data science techniques to provide exposure to 240 technology stocks. Microsoft is the top firm with 15.8% allocation. IETC trades in a light volume of 18,000 shares and charges 18 bps in annual fees.
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 >>