Ticker Reports for October 31st
Microsoft Can Hit New All-Time Highs This Year - Here's Why
Microsoft's (NASDAQ: MSFT) price action pulled back into a technical buying opportunity following the FQ1 2025/CQ3 2024 earnings release. The primary culprits are a diminished outlook for Azure growth in Q2 and increased expectations for AI spending. As bad as the news may sound, the takeaways are bullish because growth is robust, guidance is likely cautious, and the indications are that the revenue has only been pushed out, not lost. Among the critical details are delayed construction of data centers related to GPU and CPU availability and an expectation that supply/demand imbalances would diminish over time.
Microsoft Price Pulls Back After Company Clears a High Bar
Microsoft’s FQ1 results are solid and support the stock price uptrend. The company produced $65.6 billion in net revenue for a gain of 16.1%, beating the consensus forecast by 160 basis points on strengths in all segments and sub-segments. The revision trends make the outperformance more substantial; more than 90% of analysts raised their estimates for results during the quarter, and the bar was set high. Also note that the company’s revenue growth is accelerating sequentially and year over year, with solid guidance for Q2.
Segmentally, Productivity & Business, the company’s core segment, grew by 12%, More Personal Computing grew by 17%, and the all-important Intelligent Cloud grew by 20%. The IC segment was driven by a 33% gain in Azure, which outpaced the consensus by 400 basis points. Regarding the cloud, Microsoft’s net cloud-supported growth came in at 28%.
Margin news is also good, with GAAP EPS of $3.30, up by 10% year-over-year (YoY) and $0.20 or 600 better than forecasts. The company sustained a solid margin compared to last despite cost pressures, delivering a 14% increase in operating income and $24.7 billion in net income. The takeaway is that the company produced another positive cash flow quarter, increased its cash position sequentially, increased assets, reduced liability, and increased equity. Shareholder equity is up by 2% and is expected to continue improving as the year progresses.
Microsoft Issues Cautious Guidance
The guidance is the primary factor weighing on Microsoft’s price action following the report. The guidance isn’t weak, with Azure expected to grow by 31% to 32% and all other segments expected to grow, but it is down from the prior guide. However, investors should consider the guidance cautious due to business momentum and increased AI spending across the tech universe. Demand for computing and AI-enabled efficiency is high; supply is the only thing holding Microsoft back now.
NVIDIA's FQ3 earnings release and guidance for Q4 could catalyze this market. The CQ3 report from Meta Platforms (NASDAQ: META) certainly sets a stage upon which Microsoft’s future results will outperform the guidance; an indication from NVIDIA (NASDAQ: NVDA) that its GPU and CPU supply is improving would be good news. Regarding Meta, it is a Microsoft client, and it uses its services (and those of other hyper-scalers) in many ways, including data centers, clouds, cloud-based services, and AI workloads. Highlights from its CQ3 report include an increased forecast for AI spending, aligning with trends.
Analysts Trim Targets For Microsoft: Indicate New All-Time Highs Are Likely
The analysts' response to Microsoft’s news is mixed, with an equal number of price target reductions and increases. The net result of the first dozen is a slight reduction in the consensus target and a new low target for the range. However, the low target aligns with critical support at an important uptrend line, putting a potential floor in the market, while consensus implies a 15% upside from that level and a new all-time high.
The technical action is favorable, with Microsoft in a strong uptrend and the price action pulling back to trigger points, including a cluster of moving averages and the uptrend line. Assuming the market follows through on the opportunity, support should be confirmed within a day or two of the release, leading to higher prices later this year. If not, Microsoft's share price could break the trend, which is unexpected. In that scenario, the market for MSFT could fall to $390 or lower before finding firm support.
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Zillow Stock's Bull Case: Why This Recent Sell-Off Could Be a Buy
Shares of real estate stocks seem to be on thin ice right now, but there are signs of a potential recovery coming first to those at the top of the value chain. While real estate investment trusts (REITs) see their prices underperform the S&P 500, investors will be surprised to see that they will be among the last to see a recovery.
This is because the real estate services names could be first in line to see profit runs and higher valuations, and this is where stocks like Zillow Group Inc. (NASDAQ: Z) come into play for investors to consider moving forward. It may not be as discounted as some of the REITs to offer investors an opportunity to buy a dip today. Still, its recent decline to 87% of its 52-week high can definitely pose a potential new run higher as long as the right tailwinds play out.
Before investors get into the weeds of why real estate services stocks like Zillow are attractive today, they should first check in with Wall Street analysts for their opinions on the stock and some institutional investors to see what is actually happening in the back end to drive the stock to a new high before 2024 is over.
Wall Street Remains Bullish on Zillow Stock Despite Recent Sell-Off
Typically, Wall Street analysts will change their views on a stock after bearish price action, so the fact that they are still bullish for Zillow today means even more for investors. Those at Jefferies Financial Group recently reiterated their Buy rating for Zillow stock. Still, their price targets were the main event for investors.
By raising their valuations from $80 a share to $90 a share for Zillow, these analysts are directly calling for a net upside potential of as much as 51.4% from where the stock trades today, not to mention a new high for the year. More than that, a few institutional buyers also made their bullish views public recently.
Allocators from International Assets Investment Management decided to raise their stakes in Zillow stock to as big as $15.7 million today, giving investors a new indicator to justify a buy ahead of potential tailwinds. Even bearish traders decided to ditch their positions on Zillow stock over the past month, showing signs of capitulation.
Zillow stock’s short interest declined by as much as 3.8% during the past month despite the sell-off in the stock, which – all else being equal – should have actually attracted more short sellers to ride on the bearish momentum. Given that this wasn’t the case, investors can see the bullish evidence stacking up in favor of Zillow stock.
Key Fundamental Tailwinds Boosting Zillow Stock's Bullish Potential
It all starts with the ISM services PMI index, which shows the real estate leasing and services sector as one of the few that still manages to push expansion readings while most are falling into contraction territory. Now, services and leasing mean rentals and transaction services, where Zillow holds most of the market share today.
Seeing the recent boost in pending home sales, investors can see that Zillow now holds 50% more listings on its platform compared to last year. That means 50% more opportunities to generate revenue from fees and advertising services. Management knows this, so they’ve started pivoting the business accordingly ahead of time.
According to the company’s latest quarterly earnings press release, revenues as a whole rose by 13% over the past 12 months. However, most of this growth was driven by rentals, which outpaced residential revenue by 29% compared to only 8% during the year.
That would make sense, as investors can see mortgage rates rise right now, and the mortgage market index sits at lows not seen since 1996. Not surprisingly, shares of mortgage originator Rocket Companies Inc. (NYSE: RKT) are now down to 77% of their 52-week high prices, signaling weaknesses in the mortgage market.
Still, people need a place to live, and if it isn’t by buying, then it’ll be through renting. That’s why Zillow has invested a lot more capital and energy into that segment to anticipate the coming market shift. So far, these efforts seem to be paying off, considering the double-digit runs Wall Street expects to see from this stock.
One last check is found in Zillow stock’s valuation multiples compared to the rest of the peer group. On a price-to-book (P/B) basis, Zillow trades at only 3.1x today, coming well below the business services industry’s average valuation of 5.6x. This discount offers enough to close the gap between today’s sell-off and Wall Street analyst targets.
Maybe some of this recent bullishness comes ahead of the company’s earnings announcement, where the stock might deliver a surprising set of results backing these bullish theses into reality.
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IonQ's Quantum Surge: Ride the Wave or Cash Out?
IonQ (NYSE: IONQ), a quantum computing company founded in 2015, has taken investors on a wild ride this year. The stock has surged 112% in the past month and is now up 40% year-to-date after rebounding almost 180% from its 52-week low in August. This impressive momentum has left investors wondering if it’s time to sell or if the stock has more room to run. Let’s dive into IonQ’s business and growth prospects to understand better whether it’s a buy, sell, or hold.
What Is IonQ?
IonQ is a leader in the quantum computing industry, leveraging trapped-ion technology, which is a promising approach to building scalable, fault-tolerant quantum computers. Unlike traditional computers that rely on binary bits, quantum computers use qubits to represent both values simultaneously. This allows them to perform computations at exponentially faster speeds, with significant applications in artificial intelligence, cybersecurity, and drug development.
The company’s breakthrough technology has made it a key player in the race to unlock the full potential of quantum computing. In 2021, IonQ announced that it had developed the world’s most powerful quantum computer with a quantum volume of 4 million. In addition to developing cutting-edge technology, the company is scaling production through a factory that will produce quantum computers on an assembly line. Its upcoming Forte Enterprise quantum computer, which can operate without ultra-low temperatures, could unlock new markets and accelerate adoption.
IonQ currently has a market cap of $3.6 billion, with 189 million shares in free float and an average daily volume of 6.9 million shares.
IonQ's Rapid Growth Amid Industry Infancy
Though quantum computing remains in its infancy, IonQ’s performance suggests the company is ahead of the curve. The industry still has a long way to go before achieving widespread commercial viability, but IonQ is inching closer to profitability. Its Q2 2024 earnings, reported on August 7, showed a loss of ($0.18) per share, beating analyst expectations by $0.04. Revenue for the quarter came in at $11.38 million, surpassing estimates of $8.66 million, with a year-over-year increase of 106%.
The company’s ability to double revenue every year since 2021 reflects strong growth potential. Analysts believe this pace will continue for the next few years, driven by rising demand across various industries. IonQ also recently secured a $54.5 million contract from the U.S. Air Force Research Lab to develop scalable quantum systems over four years. With $72.8 million in bookings year-to-date, IonQ remains on track to meet or exceed its 2024 guidance of $75-$95 million, marking the third consecutive year of doubling its bookings.
IonQ’s Momentum in Quantum Computing Draws Investor Interest
IonQ’s momentum and leadership in quantum computing make it an attractive play, but caution is warranted. Analysts maintain a Moderate Buy consensus rating, with three buy recommendations and one hold. However, the average price target implies a potential downside of nearly 30%, suggesting the stock may have run ahead of its fundamentals. Institutional investors are still bullish, with $124 million in net inflows over the past 12 months compared to $58 million in outflows.
While IonQ’s long-term prospects are promising, the stock is currently overbought with an RSI near 80, indicating a potential short-term pullback. Given the elevated short interest and strong momentum, investors may see further upside in the near term, but chasing the stock at these levels carries risk. Long-term investors would be better served by waiting for a pullback rather than buying into the current rally. Meanwhile, those already holding the stock might consider locking in profits, as IonQ’s sharp rise makes it vulnerable to corrections.
IonQ’s position as a quantum computing leader offers significant growth potential, but the stock’s recent surge suggests short-term caution. Investors should keep an eye on its upcoming earnings and potential pullbacks for better entry points while staying mindful of the company’s long-term promise.
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