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Microsoft's Azure Returns to Growth: 5 ETFs to Buy

Sweta Killa

After the closing bell on Wednesday, the world's largest software maker Microsoft MSFT delighted investors with blow-out fiscal second-quarter 2020 results. It topped both revenue and earnings estimates, and witnessed a rebound in Azure sales growth.

Earnings per share came in at $1.51, outpacing the Zacks Consensus Estimate by 19 cents and improving 20% from the year-ago quarter. Revenues rose 14% year over year to $36.9 billion, topping the consensus estimate of $35.7 billion. This marks the 10th straight quarter of double-digit sales growth.

The company’s shift toward Internet-based computing business, which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform, is paying off. Azure sales grew 62% in the fiscal second quarter, up from 59% growth in the previous quarter. This represents the first acceleration in Azure’s cloud computing revenue growth in eight quarters. Sales of Office 365 Commercial and Dynamic 365 climbed 27% and 42%, respectively (see: all the Technology ETFs here).

On the earnings conference call, Microsoft guided fiscal third-quarter revenue outlook in the range of $34.1-$34.9 billion. The low end is above the Zacks Consensus Estimate of $34.05 billion.

Following the earnings announcement, shares of Microsoft climbed as much as 4.6% to an all-time high in after-market hours. Currently, Microsoft carries a Zacks Rank #3 (Hold) and has a Growth Score of B. It falls under a top-ranked Zacks industry (top 21%), which suggests its outperformance in the days ahead.

ETFs in Focus

Investors seeking to bet on this software leader could definitely tap ETFs. While there are several ETF options available, we have highlighted six with double-digit exposure to Microsoft that could be compelling choices.

Select Sector SPDR Technology ETF XLK

This most-popular technology ETF follows the Technology Select Sector Index and has $28.1 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 10.5 million shares a day on average. It holds about 71 securities in its basket, with Microsoft occupying the second position at 19.2%. XLK has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 5 Low-Cost Tech ETFs for Investors).

iShares U.S. Technology ETF IYW

This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 156 technology stocks. Of these, Microsoft occupies the second position in the basket with 17.2% of the assets. The fund has AUM of $5.1 billion and charges 42 bps in fees and expenses. Volume is good as it exchanges nearly 107,000 shares a day. The fund has a Zacks ETF Rank #1 with a Medium risk outlook.

Vanguard Information Technology ETF VGT

This fund manages about $27.4 billion in its asset base and provides exposure to 324 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here MSFT occupies the second position with 16% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 518,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook (read: Apple ETFs to Buy Post Blockbuster Q1 Results).

MSCI Information Technology Index ETF FTEC

This fund is home to 322 technology stocks with AUM of $3.5 billion. It follows the MSCI USA IMI Information Technology Index. Microsoft is the second firm with a 15.8% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 294,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook.

iShares Evolved U.S. Technology ETF IETC

This is an active ETF, having accumulated $24.1 million in its asset base so far. It employs data science techniques to provide exposure to 236 technology stocks. Microsoft is the top firm with 15.6% allocation. IETC trades in a light volume of 8,000 shares and charges 18 bps in annual fees (read: FAANG ETFs in the Spotlight Ahead of Q4 Earnings).

iShares Global Tech ETF IXN

This product provides broad exposure to technology stocks from around the world by tracking the S&P Global 1200 Information Technology Sector Index. Holding 118 stocks in its basket, Microsoft occupies the second spot with 15.3% share. American firms dominate the fund’s portfolio at 80%. The ETF has amassed $3.3 billion in its asset base but trades in a good volume of 76,000 shares a day on average. Expense ratio came in at 0.46%.

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