This week the big tech companies reported their earnings for the last quarter. For the overall market sentiment, it matters because many compare the current elevated levels in the tech sector similar to the tech bubble in the late 90s, early 00s.
However, at least in the case of Microsoft, there is no bubble in sight. The company runs at full capacity, growing at incredible rates compared to its size.
For the fiscal year 2021, the second quarter brought EPS (Earnings Per Share) of $2.03 on $1.64 expected. Moreover, revenue jumped to $43.1 billion vs. $40.2 billion expected. Furthermore, a close look at the details reveals an even more impressive performance.
Highlights of Microsoft Recent Quarterly Performance
The core of Microsoft’s business revolves around three main segments – Intelligent Cloud, More Personal Computing, and Productivity and Business Processing. All three segments had double-digit growth in the last quarter, with Intelligent Cloud growing at a whopping 23%.
As such, net income for the quarter grew by +33%. Again, nothing short of impressive for a company the size of Microsoft!
Let us have a look at one business segment part of Microsoft that many of us do not quite understand. When Microsoft bought LinkedIn, it looked like a bad decision at the time.
Yet, LinkedIn grows at an incredible pace, while no one understands how. It generated more revenue by +23% in the last quarter, with conversations up 48% and sessions up 30%.
We could go on every business segment of Microsoft and see similar growth rates. What does it tell us?
One thing is that growth in the tech sector is not over. Moreover, the implications are that valuations, even at these levels, are reasonable. More precisely – large-cap tech companies are cheap if we use Microsoft’s metric as a benchmark.
The pandemic changed consumer spending, and households around the world invested in tech. Think of how many of your friends, family members, acquaintances have recently purchased a computer, a subscription at some online service, a router, a video camera, a printer, or software? The chances are that you’ll know some, and this means a lot for tech corporations with worldwide businesses.
As long as the tech sector releases earnings like Microsoft just did this week, no tech bubble is in sight. Instead, the risk at hand is of missing a great ride in companies that benefited the most from the pandemic – as Microsoft did.