Stock of the week: Microsoft

Surveying the absolute havoc in markets over these past few days/weeks, it’s hard to know where to look and what to do next. Uncertainty is king and it’s still early to assess if this conflict will permanently alter market assumptions.

At times like this, it probably makes sense to focus on big companies that have a lot of strings to their bow plus high transparency and a business model that’s well understood.

Microsoft is a great example. One of the largest companies in the world, valued at over $2 trillion. Let’s start with the technicals:

Microsoft shares fell by over 22% from the highs before rallying to $303 and finding resistance at the crossover between the 200 day and 20 day moving averages. Buying the dip has been a winning strategy for a long time. Will this time be different? The 200DMA is a key technical juncture for bulls to overcome.

For the bears, it’s a simpler argument. Microsoft’s stock price failed to reclaim the key technical area, and retested it from below before finding more selling. Bears will say that’s textbook bearish price action..

Which is why the technicals aren’t really much help. Especially at a time like this when everything’s unclear and investment time horizons aren’t aligned at all.

For example, long-term and dollar cost averaging investors can make the case that a 20% discount is a good opportunity: If it dips 10 or 20% further, that’s either:

1. Not of any consequence because a resolution to the conflict could see those losses recovered and a resumption in uptrend.
2. A chance to average in at lower prices.

For a shorter term investor or trader, a further fall of 10 or 20% could be catastrophic if they’re trading with a long bias.

How about cybersecurity?

Lots of speculation that Russia will use cyberattacks against the West in retaliation for their support of Ukraine. Microsoft could be a very large target, especially after their decision to suspend all new sales of their products in Russia.

Conversely, they could also benefit from the conflict. Microsoft already has US defence contracts to provide augmented reality headsets, and won the battle for the controversial JEDI (Joint Enterprise Defense Infrastructure) cloud contract.

The US Department of Defence subsequently scrapped the JEDI program, before asking Amazon Web Services, Microsoft, Google & Oracle to submit applications for the new Joint Warfighter Cloud Capability contract.

The US General Services Administration said last year that only AWS & Microsoft "appear to be capable of meeting all of the DoD's requirements at this time, including providing cloud services at all levels of national security classification"

Last month, Singapore chose Microsoft to develop their sovereign cloud. Chan Tsan, CEO of HTX and deputy secretary of the Ministry of Home Affairs said

“This strategic partnership with Microsoft to develop a sovereign cloud here in Singapore will enable us to push the boundaries of innovation and be in the forefront of technology,”

Whatever happens, Microsoft will certainly be in the spotlight over the coming weeks and months.

Not investment advice. Past performance does not guarantee or predict future performance.