Microsoft Stock (NASDAQ:MSFT)
At 12:30 p.m. ET, Microsoft stock had dropped by 4.5%.
Microsoft (NASDAQ:MSFT) is rather protective relative to other IT companies, thus, such a one-day decline in Microsoft Stock share price was unusual. Several other tech giants, including Advanced Micro Devices (AMD), were substantially lower, with the latter’s announcement of impending weak PC sales for the September quarter pointing to a similar weakness for Microsoft’s PC-related business.
Further, bond rates climbed after a positive employment report, which was terrible news for the IT industry.
What’s the Reason?
AMD preannounced its revenue for the September quarter last night, which was far lower than expected. The $6.7 billion AMD projected on its results call in August is expected to be closer to $5.6 billion.
In this case, AMD’s “client” (or computer) section is to blame. Sales of client chips are predicted to plummet, with a 53% quarterly decline and a 40% annual decline forecasted. A lot of demand for personal computers was pushed up because of the epidemic. PC sales have stalled due to the current economic climate of rising inflation and looming uncertainty. Though consumer PC sales are likely less than these data suggest, manufacturers may be clearing out stock in preparation for releasing new chip architectures from AMD and its competitors later this year.
This is terrible news for Microsoft (NASDAQ:MSFT) since the company makes a lot of money from selling its own Surface computers and tablets and licensing its Windows operating system to others.
However, this may be an overreaction, so Microsoft Stock investors shouldn’t worry just yet. The “More Personal Computing” category comprises not just the Windows and PC divisions but also the Xbox and Bing divisions and the advertising revenue they generate. This business unit generated 30% of Microsoft’s revenue in the previous fiscal year and was the company’s slowest-growing division. So, it’s not entirely inconsequential, but it doesn’t rank up there with cloud computing and other business app offerings.
The good news is that AMD expects healthy growth in data center chip sales. An 8% quarterly and 45% annual increase are anticipated for the segment in the following statement.
Microsoft (NASDAQ:MSFT) and other IT giants with global reach are indeed having a rough go of it right now, but the industry is suffering. Increasing long-term bond rates and a more robust currency result from the relative outperformance of the U.S. economy and Federal Reserve rate rises. This drives up the discount rate on growth stocks and reduces overseas sales for American firms like Microsoft Stock.
Although the jobless rate fell from 3.7% to 3.5% in September, there was more bad news in that department today. Since this points to a tight labor market, the Federal Reserve will likely keep raising interest rates rapidly.
What Should You Do Now
Given Microsoft’s stellar performance, Microsoft Stock shareholders shouldn’t worry too much about the near term. Azure cloud and corporate software help firms automate and battle inflationary pressures. Although it won’t be immune to a global recession, it will be less affected. AMD’s cloud findings suggest those sections will be OK. Microsoft, however, has an even better credit rating than the United States government.
Despite the recent surge in the 10-year Treasury yield, Microsoft Stock trades at only 23 times this year’s earnings expectations, providing investors with an earnings yield of over 4%.
Earnings from cloud computing and other cutting-edge software applications are expected to rise for at least the next decade, outperforming those from government bonds. Despite the decline associated with less-strong PC firms, Microsoft Stock remains an excellent defensive investment.
Featured Image- Megapixl @ Shiningcolors
Author Shariq Khan 
