Cloud Powers Microsoft's Fiscal Q2 Results: ETFs to Buy
After the closing bell on Tuesday, the world's largest software maker Microsoft MSFT delighted investors with better-than-expected fiscal second-quarter 2021 results. It continued a long track of beating earnings estimate and topped the revenue estimate driven by digital transformation and cloud demand (see: all the Technology ETFs here).
Earnings per share came in at $2.03, outpacing the Zacks Consensus Estimate by 39 cents and improving 34% from the year-ago quarter. Investors should note that Microsoft has not missed on quarterly earnings since third-quarter fiscal 2016. Revenues grew 17% year over year to $43.1 billion, topping the consensus estimate of $40.1 billion. This is the first time that the company hit $40 billion in sales. It also logged the 14th straight quarter of double-digit revenue growth.
Growing demand for cloud computing services and software tools that support at-home workers led to the robust performance. Growth of the flagship Azure computing platform rose 50% in the fiscal second quarter, up from 48% in the fiscal first quarter. Sales of Office 365 Commercial and Dynamic 365 climbed 21% and 39%, respectively. Microsoft’s gaming revenues jumped 51% year over year to reach $5 billion for the first time while personal-computer sales also surged, boosting the company’s flagship Windows operating-system business (read: Cloud Computing Gets Bull & Bear Leveraged ETFs From Direxion).
The software giant continued to benefit from the work-from-home and learn-at-home trends amid the COVID-19 pandemic. Across various businesses and segments, management forecasts Productivity and Business Processes sales (mostly comprising Office software) will be in the range of $13.35-$13.6 billion, Intelligent Cloud division sales in the range of $14.7-14.95 billion, and More Personal Computing division sales in the range of $12.3-$12.7 billion.
Following the robust earnings announcement, shares of Microsoft climbed as much as 5% in after-market hours. Currently, Microsoft carries a Zacks Rank #3 (Hold) and has a Growth Score of A.
ETFs to Buy
Investors seeking to invest in this software leader could tap ETFs with a lower level of risk. 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 $38.8 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 6.3 million shares a day, on average. It holds about 75 securities in its basket, with Microsoft occupying the second position at 19.6%. XLK has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
iShares Dow Jones US Technology ETF IYW
This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 158 U.S. electronics, computer software and hardware, and informational technology companies. Of these, Microsoft occupies the second position in the basket with 16.1% of the assets. The fund has AUM of $6.9 billion and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 373,000 shares a day. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 5 Top-Ranked ETFs That Investors Can Bet On).
Vanguard Information Technology ETF VGT
This fund manages about $42.4 billion in its asset base and provides exposure to 343 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT occupies the second position with 15.3% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 495,000 shares. It has a Zacks ETF Rank #2 with a Medium risk outlook.
MSCI Information Technology Index ETF FTEC
This fund is home to 339 technology stocks with AUM of $5.4 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with 15.3% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 272,000 shares a day. It carries a Zacks ETF Rank #2 with a Medium risk outlook.
iShares Global Tech ETF IXN
This product provides exposure to electronics, computer software and hardware, and informational technology companies by tracking the S&P Global 1200 Information Technology Sector Index. Holding 128 stocks in its basket, Microsoft occupies the second spot with 14.7% share. The ETF has amassed $5.2 billion in its asset base but trades in good volume of 75,000 shares a day on average. Expense ratio is 0.46% (read: ETFs to Play as Beginning of Biden Era May Prompt Market Rally).
iShares Evolved U.S. Technology ETF IETC
This is an active ETF, having accumulated $104.8 million in its asset base. It employs data science techniques to provide exposure to 241 technology stocks. Microsoft is the top firm with 14.9% allocation. IETC trades in a light volume of 17,000 shares and charges 18 bps in annual fees.
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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 Global Tech ETF (IXN): ETF Research Reports
Vanguard Information Technology ETF (VGT): ETF Research Reports
iShares U.S. Technology ETF (IYW): ETF Research Reports
iShares Evolved U.S. Technology ETF (IETC): ETF Research Reports
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