Microsoft (MSFT) shares closed Thursday's trading down 2% to $108.50 despite confidence in the company voiced by traders and analysts.
The slide adds to a disappointing October for investors that has left the stock down 5.1%.
"Tech's been overpriced for a while," ICM Asset Management Senior Research Analyst Michael Finkel, told Real Money. "That's the reason we don't own any of the FANG stocks, for example."
He explained that the pullback in tech names, including Microsoft, reflects that sentiment.
Yet Finkel expressed confidence in his investment for the longer term.
His firm, which holds 205,200 shares of Microsoft in its $116 million equities portfolio, has a longer term investing outlook that is more amenable to a "more reasonable" valuation found in Microsoft when compared to the major FANG names like Netflix (NFLX) .
"Microsoft trades with a trailing PE of 29 and is growing its earnings at around 12%-15% year over year," James "Rev Shark" DePorre reasoned in his take on the tech dilemma. "That isn't particular cheap but it isn't bad for a consistent big cap that is a safe haven for those that want to park some cash."
He added the caveat that Microsoft is a positive play in an up-trending market, which is unfortunately not the case at present.
"The market isn't rewarding earnings reports either," he said.
Analyst Action on Microsoft Outlook
Yet, the market hasn't dampened analysts' positive outlook for Microsoft heading into its earnings release next week.
"Our positive thesis remains that Microsoft can return to sustainably delivering mid-teens EPS and FCF growth as the headwinds from a declining PC market in recent years and the transition to the cloud continue to abate," Wells Fargo analyst Phil Winslow wrote in his outlook ahead of the September-quarter results.
He reiterated his firm's $130 price target and an "outperform" rating as he expects the company to display these positive factors come Oct. 24.
Credit Suisse analyst Brad Zelnick said that the company's growth engines, including the aforementioned cloud business and the Microsoft 365 products, as specific factors he took away from its recent proxy release and are things to watch come the earnings release.
"Microsoft 365 is now a multi-billion-dollar business, Commercial Cloud annualized revenue at $29 billion is ahead of its internal $20 billion target set in 2016," he wrote on Tuesday.
The cloud segment, Azure, has been highlighted by Microsoft in recent years as a major area of focus for the company and was noted extensively on its most recent earnings call.
"We will continue to increase our investments in CapEx to meet the growing demand for our cloud services," CFO Amy Hood said in July.
Credit Suisse's metrics indicate the bet on the secular growth story of cloud computing has been a profitable one, to the tune of $9 billion of outperformance on company guidelines.
To be sure, Zelnick noted that the company's Edge internet browsing service and Bing search engine are "areas that still require work."
Given the metrics of growth across the largest business segments, he downplayed these minor issues and maintained a $125 price target and an "outperform" rating for the stock as it cruises toward earnings.
Head in the Clouds
The cloud segment is also garnering praise from earnings-anticipating analysts.
Microsoft's is gaining ground quickly in cloud computing clash with industry leader Amazon (AMZN) .
The Redmond, Washington-based tech giant's focus on cloud through its Azure service over recent years is beginning to pay dividends, according to watchful investors and analysts.
Ivan Feiseth, CIO of Tigress Financial Partners, told Real Money that Microsoft should continue to nip at Amazon's tail in cloud market share.
Amazon had 40% of the cloud business at the end of 2017; Microsoft had 23%.
"Azure has grown almost 100% per quarter," Feinseth explained. "I expect that growth trend to continue moving forward."
He added that the company's focus on hybrid solutions rather than simply the public cloud is key to its success
"Everyone wants hybrid because up there with cost effectiveness and efficiency is security," he said.
Given recent data privacy issues at many tech giants, he expects the added layer of coverage from a dedicated server to pacify user concerns on fully public cloud platforms like Amazon.
The cloud, along with the gaming segment that the strides in cloud will help support, make a strong case for the company to continue growing and to report another strong earnings release.
"Definitely this [dip] is a buying opportunity," Feinseith said as a result of the opportunity he sees.
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