Microsoft Falls As Strong Dollar Hurts Profits

Key Insights

• Microsoft provided new guidance for the fiscal fourth quarter. 
• The company cut estimates for earnings and revenue due to the negative impact of foreign exchange dynamics. 
• Other international firms may also take a hit from strong dollar in the next quarter. 

Microsoft Cuts Guidance For Fiscal Q4 2022

Shares of Microsoft  gained downside momentum after the company released new guidance for the fiscal Q4 2022, cutting its outlook for both earnings and revenue.

In the fourth quarter of 2022, Microsoft expects to report revenue of $51.94 billion – $52.74 billion, compared to the previous estimate of $52.40 billion – $53.20 billion.

The company’s net income is expected to decrease from the previous estimate of $17.10 billion – $17.67 billion to $16.85 billion – $17.43 billion. As a result, Microsoft expects to report earnings of $2.24 – $2.32 per share, compared to previous expectations of $2.28 – $2.35 per share.

The guidance was revised due to negative foreign exchange impact. This is an important theme to watch as strong dollar could put pressure on earnings and revenue of many international companies.

What’s Next For Microsoft Stock?

Analysts expect that Microsoft will report earnings of $10.77 per share in the next fiscal year, so the stock is trading at 25 forward P/E.

It should be noted that Microsoft shares have already declined by almost 25% from the highs that were reached back in November 2021. Microsoft is not cheap, but traders have been willing to pay a premium for the world’s leading companies in recent years.

At this point, the key question is whether traders will be ready to increase purchases of big tech stocks at a time when Treasury yields are moving towards yearly highs. The Fed will start reducing the size of the balance sheet, which could hurt appetite for risk. This scenario could be bearish for Microsoft and other higher-PE stocks.

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