Microsoft Woes Hide Opportunity With This ETF

Entering Monday, shares of Microsoft (MSFT) were off 17.44% year-to-date, a stark, discouraging performance relative to some other megacap technology and artificial intelligence (AI)-adjacent names. However, there may be a silver lining for opportunistic traders.

Microsoft’s fundamentals are still widely viewed as compelling, and some experts argue the stock is now attractively value. Either or both factors could enhance the case for occasional use of the Direxion Daily MSFT Bull 2X Shares (MSFU) — an ETF designed to deliver 200% of the tech stock’s daily movements.

Indeed, Microsoft is battered and bruised this year, but that condition may not last for long. Credible fundamental factors underpin that perspective, indicating that MSFU still offers utility to nimble short-term traders.

“Microsoft is one of three public cloud providers that can deliver a wide variety of PaaS/IaaS solutions at scale. Based on its investment in OpenAI, the company has also emerged as a leader in AI,” noted Morningstar’s Dan Romanoff. “Microsoft has also enjoyed great success in upselling users on higher-priced Office 365 versions, notably to include advanced telephony features. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins and deepening ties with customers.”

MSFU Can Get Its Groove Back

Microsoft makes Morningstar’s cut among the best technology stocks to consider today, but traders considering MSFU are apt to want more. The catalysts are there and could soon crystallize, particularly as the company rejuvenates some of its more basic — though profitable — products into higher-scale solutions.

“Microsoft is also shifting its traditional on-premises products to become cloud-based SaaS solutions. Critical applications include LinkedIn, Office 365, Dynamics 365, and the Power Platform, with these moves now beyond the halfway point and no longer a financial drag. Office 365 retains its virtual monopoly in office productivity software, which we do not expect to change in the foreseeable future,” added Romanoff.

Traders mulling MSFU should also stay on watch for analysis pertaining to the highly lucrative Azure cloud business, because the unit has been and can again be a kick-starter for ETFs like MSFU.

“We believe that Azure is the centerpiece of the new Microsoft. Even though we estimate it is already an approximately $75 billion business, it is still growing at approximately 30% annually. Azure has several distinct advantages, including that it offers customers a painless way to experiment and move select workloads to the cloud, creating seamless hybrid cloud environments,” concluded Romanoff.

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