Microsoft sees a sudden V-shaped reversal! Is the AI story still far from over? (July 31, 2024)

Hello everyone, in this week's "Technology Tracking", we will analyze the current leader in the AI field and the highest market cap listed company in the US stock market - Microsoft.$Microsoft (MSFT.US)$Although investors can dig out high-quality individual stocks by themselves, investing only in one stock may be very risky. It is best to achieve risk diversification by covering enough small-cap stocks and enough industries.

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Hot events

On July 31, 2024, against the backdrop of a strong rise in technology stocks, Microsoft's stock price fell 1.08%, far behind the 2.64% increase in the NASDAQ index. Earlier, Microsoft released the highly anticipated Q4 (ending June 30, 2024) earnings report, which showed that the company's revenue and net income were slightly higher than the market expectations, but the cloud services department where AI is located grew less than expected, triggering market selling of the stock.

Data shows that Microsoft's Q4 revenue was $64.7 billion, an increase of 15.20% year-on-year; earnings per share (EPS) of $2.95, an increase of 9.67% year-on-year. In contrast, Wall Street expected revenue of $64.5 billion and EPS of $2.94.

As Microsoft's largest business unit, Intelligent Cloud business revenue increased by about 19% year-on-year to $28.5 billion, slightly lower than Wall Street's anticipated $28.7 billion. Within the Intelligent Cloud business, Azure and other cloud service revenues increased by 29% year-on-year, lower than Wall Street's anticipated growth of 31%. This is the first time since 2022 that Azure and other cloud services have grown slower than Wall Street expectations, to some extent dampening market expectations for rapid monetization of AI technology.

However, the good news is that Microsoft continues to increase capital expenditures on AI. Data shows that Microsoft's Q4 capital expenditures totaled $19 billion, almost all of which were related to cloud services and AI. This is what Wall Street likes to see, because huge AI capital expenditures are benefiting the hottest chip and AI concept stocks currently being traded on the market.

Looking to the future, Microsoft expects revenue for the next quarter (ending September 30, 2024) to be between $63.8 billion and $64.8 billion. On a median basis, this means a year-on-year increase of 13.8%, one percentage point higher than the same period of the previous year.

Technical analysis

Trend analysis:

From the weekly chart, Microsoft's stock price has maintained a steady upward trend since early 2023, with a range increase of 76%.

However, from the daily chart, Microsoft's stock price currently appears to have a 'reverse V-shaped' reversal at the high point. This pattern may signal a reversal from rising to falling trends, but it is difficult to identify a clear breakthrough point. In addition, the reverse V-shaped reversal pattern may also be a precursor to other patterns, such as the opportunity to further evolve into a 'double top' pattern.

Indicator interpretation:

● Microsoft's stock price is currently below the 50-day moving average (MA50) and above the 200-day moving average (MA200), indicating that the long-term trend is still good, but it has recently experienced a significant decline.

● With the decline in stock prices, trading volume in recent days has also increased significantly, suggesting that market selling pressure has been further released.

● Since the stock price hit its peak and fell back on July 5, the RSI and MACD indicators have followed the trend of the stock price, and no bottom-fishing signals have been released yet.

● A 'hammer' appeared on the K-line chart on the latest day (July 31), suggesting that the interest of the bulls to buy has increased and the price may have a short-term rebound.

Areas of Focus

Since hitting a historical high on July 5, Microsoft's stock price has maintained an adjusting trend. For now, its long-term rise remains intact.

The 'hammer' that appeared on the daily chart is just a preliminary signal of a short-term rebound in the stock price, and further support from other technical indicators is needed. If the stock price continues to decline, investors can pay attention to whether the 200-day moving average and the neckline position of the 'reverse V-shaped' reversal pattern can provide potential support, both of which are above $400.

This content discusses technical analysis. Other methods, including fundamental analysis, may provide different perspectives. The examples provided are for illustrative purposes only and do not reflect expected results.

All investment involves risk, including the potential loss of principal, and no investment strategy can guarantee success.