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Top-Ranked ETFs to Ride on Microsoft's Cloud Growth Story
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After the closing bell on Thursday, the world's largest software maker Microsoft (MSFT - Free Report) delighted investors with stellar fiscal second-quarter 2018 results on strong performance in its fast-growing cloud business.
Earnings per share came in at 96 cents, easily outpacing the Zacks Consensus Estimate of a dime and higher than the year-ago earnings of 83 cents. Revenues rose 12% year over year to $28.9 billion, topping the estimate of $28.35 billion (read: FAAMG ETFs to Watch as Q4 Earnings Unfold).
The outperformance was credited to the strength in the cloud business, particularly Azure, sales of which grew 98% from the year-ago period. This represents the 10th successive instance of more than 90% revenue growth for its flagship Azure cloud computing service. Per research firm Canalys, Azure has been growing rapidly in the $14.4 billion cloud computing market and holds the second position with 13.9% of the market, trailing Amazon.com’s (AMZN - Free Report) Amazon Web Services with more than 31.8% market share.
Since Satya Nadella has taken over, the fortunes of the company have strongly turned around to be a true player in cloud computing business, which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform. This has now become a major source of growth. Sales of Office 365 and Dynamic 365 also climbed 41% and 67%, respectively.
Shares of Microsoft initially dipped as much as 3.2% in after-market hours following the results but later moved into their positive territory after recouping all the losses. Currently, Microsoft carries a Zacks Rank #3 (Hold) and a VGM Style Score of C. It falls under a top-ranked Industry (top 43%), suggesting that it has room for upside in the days ahead.
ETFs in Focus
Investors’ seeking to bet on this software leader with lower risk could definitely look into the ETF world. While there are several ETF options available in the market, we have highlighted seven ETFs with the largest exposure to Microsoft and a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), suggesting smooth trading ahead (see: all the Technology ETFs here).
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 140 technology stocks. Out of these, Microsoft occupies the second position in the basket with 13.2% of assets. The fund has AUM of $4.2 billion and charges 44 bps in fees and expenses. Volume is good as it exchanges nearly 181,000 shares in hand a day. The fund has a Zacks ETF Rank #1.
This most popular technology ETF follows the Technology Select Sector Index and has $21.8 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 9.8 million shares a day on average. It holds about 71 securities in its basket with Microsoft occupying the second position at 11.4%. It has a Zacks ETF Rank #2 (read: Amazing ETF Strategies for Skyrocketing Markets).
This fund is home to 352 technology stocks with AUM of $1.7 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with 10.1% allocation. The ETF has 0.08% in expense ratio while volume is good at 248,000 shares a day. It has a Zacks ETF Rank #2.
This fund manages about $18.8 billion in its asset base and provides exposure to 368 technology stocks by tracking the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT takes the third spot with 9.9% share. The ETF has 0.10% in expense ratio while volume is solid at nearly 478,000 shares. It has a Zacks ETF Rank #2.
iShares Morningstar Large-Cap Growth ETF
This fund targets the large U.S. companies that are expected to see earnings growth at an above-average rate relative to the market. It follows the Morningstar Large Growth Index, holding 86 stocks in its basket with Microsoft taking the top position at 9.6% share. The ETF has amassed $951.5 million in its asset bae while trades in paltry volume of 14,000 shares. It charges 25 bps in annual fees and has a Zacks ETF Rank #1 (read: Top Large-Cap Growth ETFs of 2017).
iShares Edge MSCI Multifactor Technology ETF
This ETF has attracted $8.1 million in its asset base since its debut in last May and trades in a meager volume of about 2,000 shares. It targets companies that have the potential to outperform the broad U.S. technology sector and tracks the MSCI USA Information Technology Diversified Multiple-Factor Capped Index. Holding 44 stocks in its basket, Microsoft is the second firm accounting for 9.1% of the portfolio. TCHF charges 35 bps in fees per year and has a Zacks ETF Rank #2.
This ETF provides exposure to the 104 largest domestic and international non-financial companies listed on the Nasdaq. Microsoft takes the second spot, making up for 9% allocation. QQQ is one of the largest and the most popular ETFs in the large-cap space with AUM of $63.6 billion and average daily volume of 30.6 million shares. It charges investors 20 bps in annual fees and has a Zacks ETF Rank #2 (read: Trump's First Year in Office: 5 Must-See ETF Charts).
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Top-Ranked ETFs to Ride on Microsoft's Cloud Growth Story
After the closing bell on Thursday, the world's largest software maker Microsoft (MSFT - Free Report) delighted investors with stellar fiscal second-quarter 2018 results on strong performance in its fast-growing cloud business.
Earnings per share came in at 96 cents, easily outpacing the Zacks Consensus Estimate of a dime and higher than the year-ago earnings of 83 cents. Revenues rose 12% year over year to $28.9 billion, topping the estimate of $28.35 billion (read: FAAMG ETFs to Watch as Q4 Earnings Unfold).
The outperformance was credited to the strength in the cloud business, particularly Azure, sales of which grew 98% from the year-ago period. This represents the 10th successive instance of more than 90% revenue growth for its flagship Azure cloud computing service. Per research firm Canalys, Azure has been growing rapidly in the $14.4 billion cloud computing market and holds the second position with 13.9% of the market, trailing Amazon.com’s (AMZN - Free Report) Amazon Web Services with more than 31.8% market share.
Since Satya Nadella has taken over, the fortunes of the company have strongly turned around to be a true player in cloud computing business, which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform. This has now become a major source of growth. Sales of Office 365 and Dynamic 365 also climbed 41% and 67%, respectively.
Shares of Microsoft initially dipped as much as 3.2% in after-market hours following the results but later moved into their positive territory after recouping all the losses. Currently, Microsoft carries a Zacks Rank #3 (Hold) and a VGM Style Score of C. It falls under a top-ranked Industry (top 43%), suggesting that it has room for upside in the days ahead.
ETFs in Focus
Investors’ seeking to bet on this software leader with lower risk could definitely look into the ETF world. While there are several ETF options available in the market, we have highlighted seven ETFs with the largest exposure to Microsoft and a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), suggesting smooth trading ahead (see: all the Technology ETFs here).
iShares Dow Jones US Technology ETF (IYW - Free Report)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 140 technology stocks. Out of these, Microsoft occupies the second position in the basket with 13.2% of assets. The fund has AUM of $4.2 billion and charges 44 bps in fees and expenses. Volume is good as it exchanges nearly 181,000 shares in hand a day. The fund has a Zacks ETF Rank #1.
Select Sector SPDR Technology ETF (XLK - Free Report)
This most popular technology ETF follows the Technology Select Sector Index and has $21.8 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 9.8 million shares a day on average. It holds about 71 securities in its basket with Microsoft occupying the second position at 11.4%. It has a Zacks ETF Rank #2 (read: Amazing ETF Strategies for Skyrocketing Markets).
MSCI Information Technology Index ETF (FTEC - Free Report)
This fund is home to 352 technology stocks with AUM of $1.7 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with 10.1% allocation. The ETF has 0.08% in expense ratio while volume is good at 248,000 shares a day. It has a Zacks ETF Rank #2.
Vanguard Information Technology ETF (VGT - Free Report)
This fund manages about $18.8 billion in its asset base and provides exposure to 368 technology stocks by tracking the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT takes the third spot with 9.9% share. The ETF has 0.10% in expense ratio while volume is solid at nearly 478,000 shares. It has a Zacks ETF Rank #2.
iShares Morningstar Large-Cap Growth ETF
This fund targets the large U.S. companies that are expected to see earnings growth at an above-average rate relative to the market. It follows the Morningstar Large Growth Index, holding 86 stocks in its basket with Microsoft taking the top position at 9.6% share. The ETF has amassed $951.5 million in its asset bae while trades in paltry volume of 14,000 shares. It charges 25 bps in annual fees and has a Zacks ETF Rank #1 (read: Top Large-Cap Growth ETFs of 2017).
iShares Edge MSCI Multifactor Technology ETF
This ETF has attracted $8.1 million in its asset base since its debut in last May and trades in a meager volume of about 2,000 shares. It targets companies that have the potential to outperform the broad U.S. technology sector and tracks the MSCI USA Information Technology Diversified Multiple-Factor Capped Index. Holding 44 stocks in its basket, Microsoft is the second firm accounting for 9.1% of the portfolio. TCHF charges 35 bps in fees per year and has a Zacks ETF Rank #2.
PowerShares QQQ (QQQ - Free Report)
This ETF provides exposure to the 104 largest domestic and international non-financial companies listed on the Nasdaq. Microsoft takes the second spot, making up for 9% allocation. QQQ is one of the largest and the most popular ETFs in the large-cap space with AUM of $63.6 billion and average daily volume of 30.6 million shares. It charges investors 20 bps in annual fees and has a Zacks ETF Rank #2 (read: Trump's First Year in Office: 5 Must-See ETF Charts).
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 >>