Source: PaxForex Premium Analytics Portal, Fundamental Insight

Investors often find themselves grappling with a nerve-wracking decision: whether to buy a stock just before the company announces its earnings or to wait it out. Making the wrong choice can lead to significant losses, often in the form of missed opportunities for gains.

Currently, software giant Microsoft is presenting investors with this very dilemma. With the company set to unveil its fiscal third-quarter numbers after the closing bell on Thursday, the stakes are high. Despite its impressive performance since early last year, the recent notable weakness in the stock has raised concerns. Is the decline in Microsoft shares signaling investors' anticipation of disappointing Q3 results? If so, it could suggest a pessimistic outlook among investors, viewing the glass as half-empty rather than half-full. Alternatively, could this recent sell-off be an overreaction, with a potential bullish catalyst awaiting within the third-quarter report?

Of course, no one possesses a crystal ball to predict the future. However, from a risk-management standpoint, refraining from purchasing Microsoft stock ahead of Thursday's Q3 results seems prudent. Here's why.

Let's address the fundamentals first.

Looking ahead a year from now, the timing of whether you bought Microsoft stock before or after its upcoming earnings report is unlikely to have a significant impact. Regardless of whether the stock rises or falls on Friday following the report, the movement on that day is unlikely to compare meaningfully to what may unfold over the next five years, which should be the minimum timeframe in your investment horizon. This is typical of the market's behavior. Short-term fluctuations are often erratic and unpredictable. However, over the long term, a stock tends to reflect the financial performance of its underlying company.

If you still feel compelled to optimize your trade entries, it's worth considering that the lower-risk, higher-probability move in this situation may be to hold off on entering Microsoft stock.

There are a couple of reasons supporting this approach, with the first being a reminder of the outcome of the company's last quarterly earnings report. Despite Microsoft surpassing revenue and earnings estimates for the second quarter, the stock experienced a slight decline due to disappointing guidance.

Certainly, past events may not perfectly predict future outcomes, but history often has a way of repeating itself, even if momentarily.

Another reason to consider holding off on buying Microsoft shares until at least Friday is the current market sell-off. While broader market weakness may be contributing to the stock's decline, the intensified selling indicates that investors are actively avoiding holding the stock ahead of the earnings release.

Perhaps these investors are privy to certain information or recognize that, with a price nearly 30 times next year's projected earnings, the stock is currently overvalued. Whatever the reason, it's prudent to heed the subtle message conveyed by the recent movement of the stock.

However, it's essential to note that refraining from buying Microsoft shares now doesn't guarantee a decline in the stock following Thursday's earnings report. Nobody can predict market movements with absolute certainty. It's entirely plausible that shares could rally on Friday, buoyed by growth prospects, particularly in cloud computing and artificial intelligence.

Nevertheless, the primary rationale for exercising caution is to mitigate risk. Even if Microsoft shares experience a downturn on Friday or in the subsequent week, it's crucial to recognize that any dip presents a long-term buying opportunity. And indeed, it's advisable to capitalize on such an opportunity.

Microsoft isn't just another technology company; it's the cornerstone of the ubiquitous personal computer ecosystem. With its Windows operating system installed on over 70% of the world's computers, Microsoft's software and applications are integral to both professional and personal computing experiences. This market dominance underscores the enduring value and potential of Microsoft as a long-term investment.

The realm of cloud computing is another domain where Microsoft is making significant strides. While Amazon maintains its position as the market leader, data from Synergy Research Group reveals that Microsoft's cloud computing division is experiencing unparalleled growth on a global scale.

Furthermore, the ongoing advancement of Microsoft's artificial intelligence (AI) offerings is poised to further propel this growth trajectory. The company has embarked on manufacturing PCs integrated with its personal AI assistant, known as Copilot. Moreover, select upcoming laptops from Microsoft will feature onboard neural processing hardware, capable of executing AI tasks typically reliant on cloud infrastructure. Wedbush analyst Daniel Ives likened this development to Microsoft's 'iPhone Moment,' drawing parallels to Apple's transformative impact following the introduction of the iPhone.

For the foreseeable future, the analyst community unanimously anticipates robust double-digit revenue and earnings growth from Microsoft.

Still on the fence about whether to make a move? That's perfectly alright. In fact, it could be considered a positive sign. It suggests that your focus is on the bigger picture rather than getting bogged down by transient details. As mentioned earlier, the timing of your investment relative to Thursday's earnings release is unlikely to have a significant impact in the grand scheme of things. Microsoft remains a stellar company with exceptional growth prospects that transcend the outcomes of a single quarter.

If you're inclined to squeeze out a few extra profits, exercising patience for just a few more days may be worthwhile. While it may not yield substantial benefits, it certainly won't pose any harm either.

As long as the price is above 395.00, follow the recommendations below:

• Time frame: D1
• Recommendation: long position
• Entry point: 407.25
• Take Profit 1: 420.00
• Take Profit 2: 430.00

Alternative scenario:

If the level of 395.00 is broken-down, follow the recommendations below:

• Time frame: D1
• Recommendation: short position
• Entry point: 395.00
• Take Profit 1: 385.00
• Take Profit 2: 370.00