AI Drives Microsoft's Q2 Earnings: Top ETF Picks
The world's largest software maker — Microsoft MSFT — reported strong second-quarter fiscal 2024 results, beating earnings and revenue estimates. The company posted the highest profit growth in more than two years and the strongest revenue growth since 2022 (see: all the Technology ETFs here).
Despite the robust results, shares of MSFT dipped 1% in after-market hours. Investors could tap the dip in this software leader through ETFs having double-digit exposure to Microsoft. These are Select Sector SPDR Technology ETF XLK, MSCI Information Technology Index ETF FTEC, iShares Global Tech ETF IXN, Vanguard Information Technology ETF VGT and iShares Dow Jones US Technology ETF IYW.
Earnings in Focus
Earnings per share came in at $2.93, beating the Zacks Consensus Estimate of $2.76 and were higher than $2.32 reported in the year-ago quarter. Revenues grew 18% year over year to $62 billion, edging past the consensus estimate of $61.03 billion. This marks the strongest revenue growth since 2022, driven by higher demand for its cloud computing services amid growing enthusiasm about artificial intelligence.
Intelligent Cloud revenues jumped 20% year over year. Sales of Office 365 Commercial and Dynamic 365 climbed 17% and 27%, respectively. Sales of the flagship Azure computing platform grew 30% year over year. Microsoft now has 53,000 Azure AI customers and one-third of them were new to Azure in the past year, CEO Satya Nadella said on the call.
The world’s largest software maker is optimistic about the long-term prospects of its Azure business. Azure has become Microsoft’s key growth engine in recent years and has helped revive the company’s brand among developers, according to CNBC (read: Microsoft Tops Apple Ahead of Q4 Earnings: 5 ETFs to Invest).
Microsoft expects revenues of $60-$61 billion for fiscal third-quarter 2024. The Zacks Consensus Estimate is pegged at $60.56 billion. Demand for generative AI will continue to fuel Microsoft's cloud business.
ETFs in Focus
Select Sector SPDR Technology ETF (XLK)
Select Sector SPDR Technology ETF is the most popular and liquid ETF in the technology space, with AUM of $61.8 billion and an average daily volume of 7 million shares. It offers broad exposure to the technology sector and follows the Technology Select Sector Index. Select Sector SPDR Technology ETF holds about 64 securities in its basket, with Microsoft occupying the top position at 23%.
Select Sector SPDR Technology ETF charges 10 bps in fees per year from investors and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 5 Technology ETFs to Buy on a Rebound in PC Sales).
MSCI Information Technology Index ETF (FTEC)
MSCI Information Technology Index ETF is home to 303 technology stocks with AUM of $8.7 billion. It follows the MSCI USA IMI Information Technology Index. Microsoft is the second firm with a 20.6% allocation.
MSCI Information Technology Index ETF has a 0.08% expense ratio, while volume is solid at 245,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook.
iShares Global Tech ETF (IXN)
iShares Global Tech ETF provides exposure to electronics, computer software and hardware, and informational technology companies by tracking the S&P Global 1200 Information Technology 4.5/22.5/45 Capped Index. Holding 115 stocks in its basket, Microsoft occupies the top spot with a 20.5% share.
iShares Global Tech ETF has amassed $4.6 billion in its asset base and trades in a good volume of 309,000 shares a day, on average. The expense ratio is 0.41%.
Vanguard Information Technology ETF (VGT)
Vanguard Information Technology ETF manages about $63 billion in its asset base and provides exposure to 312 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT occupies the second position with a 19.7% share (read: Tech Leads S&P 500 to Highs: Does Further Rally Await ETFs?).
Vanguard Information Technology ETF has a 0.10% expense ratio, while volume is solid at nearly 494,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook.
iShares U.S. Technology ETF (IYW)
iShares U.S. Technology ETF provides exposure to U.S. electronics, computer software and hardware, and informational technology companies. It tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, holding 133 securities in its basket. Of these, Microsoft occupies the top position in the basket, with 17.1% of the assets.
iShares Dow Jones US Technology ETF has AUM of $14.9 billion and charges 40 bps in fees and expenses. Volume is good as it exchanges nearly 668,000 shares a day. IYW has a Zacks ETF Rank #1 with a Medium risk outlook.
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Microsoft Corporation (MSFT) : Free Stock Analysis Report
Technology Select Sector SPDR ETF (XLK): ETF Research Reports
Fidelity MSCI Information Technology Index ETF (FTEC): ETF Research Reports
iShares U.S. Technology ETF (IYW): ETF Research Reports
Vanguard Information Technology ETF (VGT): ETF Research Reports
iShares Global Tech ETF (IXN): ETF Research Reports
