If you live for tech earnings, today is your day. We're wrapping up this week's round of earnings previews with a couple of older tech giants, Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC). Both companies release quarterly results after market close today. On top of MSFT and INTC, Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) are also reporting at the end of the day.
Microsoft Earnings Around the Corner
Since assuming the role of CEO at MSFT, Satya Nadella has focused on developing a strategy to lead the company forward as the industry increasingly shifts to cloud computing and companies look to develop a seamless, integrated user experience across platforms. MSFT is focused on a "cloud-first, mobile-first" strategy, according to Nadella. But when he says "mobile first", he's not referring to mobile devices. In 2014, he told CNBC's Jon Fortt "when I say mobile-first, cloud-first, it's not actually the mobility of the device, it's the mobility of the human experience across devices". He added that the cloud is what orchestrates that consumer experience.
The company's intelligent cloud segment is expected to grow 8% thanks to strength in Azure, its cloud computing platform, according to Stifel analysts. They also project better-than-expected server transactional revenue due to recent Windows releases and new SQL server products.
This will be the first full quarter that includes results from the LinkedIn acquisition. MSFT is reporting fiscal Q3 results today with expectations for earnings of $0.69 per share, up from $0.62 in fiscal Q3 2016, on revenue of $23.55 billion, according to consensus third-party analyst estimates. It has beat top and bottom-line expectations in the past three quarters. The stock is just off its all-time high of $68.31 hit on April 26.
The options market has priced in about a 3.5% potential stock move in either direction around MSFT's earnings release, according to the Market Maker Move indicator on the thinkorswim platform. In short-term options trading at the April 28 weekly expiration, calls were active at the 69 and 70 strike prices while puts were active at the 63 strike. The implied volatility sits at the 64th percentile.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.
FIGURE 1: MSFT BUSINESS DIVISIONS. Microsoft Office, the company's flagship product, has seen total market share decline, but remains the largest division of the company. TD Ameritrade clients can analyze potential revenue drivers of a stock on the Fundamentals tab on the thinkorswim platform. Trefis information and estimates used in Company Profile are provided by Insight Guru, a separate and unaffiliated firm. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
Intel Earnings: Focus on Semiconductors
The semiconductor industry that INTC is a part of has been a big focus this year in the tech sector. First-quarter earnings in the industry are expected to grow 48% year-over-year, according to FactSet Research. A lot of stocks in the industry rallied substantially and are close to record highs, possibly reflecting the expected future earnings growth. One thing to keep in mind is this can be a volatile, cyclical industry that changes at a rapid pace based on demand across many sectors. Depending on what type of semiconductors are in high demand, the expected earnings growth could be distributed unevenly throughout the industry.
For the first quarter, INTC is expected to report earnings of $0.65 per share, up from $0.54 in Q4 2016, on revenue of $14.81 billion, according to consensus third-party analyst estimates. Revenues came in much higher than analysts expected in the last quarter, but earnings were only $0.03 higher than estimates, at $0.79 per share.
The options market has priced in just over a 3% potential stock move in either direction around INTC's earnings release, according to the Market Maker Move indicator. In short-term options trading at the April 28 weekly expiration, calls were active at the 38.5 strike price while puts were active at the 34.5 and 37 strikes. Volume has been heavier on the call side. The implied volatility sits at the 58th percentile.
FIGURE 2: SEMICONDUCTOR YTD PERFORMANCE. The year-to-date performance of Intel compared to Nvidia (teal line), Advanced Micro Devices (red line), and the NASDAQ (purple line). YTD performance as a percentage is shown on the right side of the chart. Chart source: thinkorswim by TD Ameritrade. Data source: Standard & Poor's. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.