Source: PaxForex Premium Analytics Portal, Fundamental Insight
The recent outage caused by a CrowdStrike software update notably spared software running on Linux and Apple's macOS operating systems. Instead, it was Microsoft's software that experienced the service interruption. This incident could potentially impact how the software giant is perceived in the market.
Despite Microsoft's strategic emphasis on its cloud and artificial intelligence (AI) products, its Windows operating system remains a critical component of the world's IT infrastructure. Veteran tech observers might recall the 1990s and 2000s when various Windows versions grappled with quality and security issues.
Early evidence and CrowdStrike's own statements suggest that the root cause of this particular problem lies with the cybersecurity firm rather than with Microsoft. However, this raises the question: should investors reconsider their stance on Microsoft stock in light of this incident?
The surge in smartphone usage following Apple's iPhone launch had a notable negative impact on Microsoft. Despite efforts to develop a competitive smartphone OS, Microsoft's attempt failed as Apple's iOS and Alphabet's Android quickly dominated the market.
Shifting its focus to the cloud, Microsoft emerged as the second-largest cloud provider, trailing only Amazon. Although investor interest in Windows waned over the years, it has remained a significant revenue generator for the company.
In the third quarter of fiscal 2024 (ended March 31), the "More Personal Computing" segment, which includes the Windows business, contributed $16 billion to Microsoft's $62 billion in quarterly revenue. Windows revenue alone saw an 11% increase compared to the previous year.
The CrowdStrike outage, while affecting over 8.5 million Microsoft devices, impacted less than 1% of all Windows machines. Despite the issue's magnitude, Microsoft's stock, which has risen nearly 20% this year, remained relatively unaffected by the outage. This indicates that the blame for the service interruption hasn't significantly shifted towards Microsoft.
Moreover, investor focus remains on Microsoft's AI innovations and cloud success, driving substantial revenue growth. In the first nine months of fiscal 2024, Microsoft's revenue reached $180 billion, a 16% increase compared to the same period in fiscal 2023. The company also reported a 20% increase in net income, amounting to $66 billion, despite a 27% rise in operating expenses.
Microsoft's current price-to-earnings ratio (P/E) of 38 is near a five-year high but is not excessive enough to trigger a significant stock price drop due to the outage. As long as users continue to rely on Windows, Microsoft's stock is unlikely to suffer.
Ultimately, Microsoft investors are not expected to experience a material impact from the outage. CrowdStrike has taken responsibility for the service interruption, and despite Windows' past challenges, no evidence suggests Microsoft is to blame. Even if future findings indicate some fault with Windows, Microsoft's stock performance is largely driven by its cloud and AI applications. Investors can remain confident in Microsoft's SaaS offerings, knowing that the company's focus on these areas will likely continue to drive stock performance.
As long as the price is below 432.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 418.01
- Take Profit 1: 410.00
- Take Profit 2: 395.00
Alternative scenario:
If the level of 432.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 432.00
- Take Profit 1: 445.00
- Take Profit 2: 460.00
