Global IT Outage Can Impact Microsoft Stock Price Outlook
A worldwide IT meltdown today could impact the tech giant's second-half outlook.
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*Many folks are waking up to disarray caused by a global IT outage
*CrowdStrike shares will weigh on our CIBR shares, but we’d consider picking more up at a certain point
*For now, we’ll stay on the sidelines with Microsoft shares because today’s events could impact its 2H 2024 outlook
Many of us woke up to headlines about disruptions to banks, airlines and healthcare systems as we learned about one of the largest IT outages in history. Companies ranging from McDonald’s MCD and United Airlines UAL to the LSE Group have disclosed issues. You may have problems logging into various services or experience other disruptions as the day gets underway, and we may see some rocky start to today’s trading. But both CrowdStrike CRWD and Microsoft MSFT shared that the causes have been identified and fixes have been deployed. Both were clear that this was not a cybersecurity incident.
The fix may be in, but the impact is going to leave a mark as we learn the true extent.
CIBR Shares
Shares of CrowdStrike are under pressure this morning and those for Microsoft are down modestly. Because CRWD shares account for about 8% of the First Trust Nasdaq Cybersecurity ETF’s CIBR holdings, we’ll feel some of that. However, because of the diversification that the ETF brings us and the uptick we’re seeing in other holdings as a result of this morning’s news, the overall impact to us should be far less. That also means we’ll benefit should companies look to diversify away from CrowdStrike.
CIBR shares have strong support near $55.50, where the 50- and 100-day moving averages converge. Should today’s revelation push them below that intersection, the next level of support is at $53.23, a much better place for newer members to pick up some shares. If we see the portfolio’s position in CIBR shares dip below the 3% level because of today’s events, we would be interested in picking up some additional shares near that $53.23 level.
Because this is going to be flogged as one of if not the largest IT outage in history, we are likely to see Microsoft and in turn others discuss how they will shift resources, and spend more to address issues like this to ensure the odds of them happening again on such a scale are low. This probably means higher spending in the near term, something that could pressure margin and EPS expectations for 2H 2024, likely continuing the pullback we’ve seen in software stocks over the last few days.
Microsoft
As it relates to our MSFT shares, which account for more than 3.5% of the portfolio, when we’ve seen the company share that it was going to ramp spending, it tends to eventually bring an opportunity to pick up some shares. Keep in mind that the company’s June quarter results will be announced after the market close on July 30, 2024, which, because companies are in their quiet periods, means any comments on spending, margins and earnings won’t be had until then. So, while we will pay attention to the technicals in the near term, noting support for MSFT shares at $424.69 and $397.31, we are going to wait until Microsoft management discusses the impact of this event and the market absorbs any resetting to Microsoft’s 2H 2024 outlook.
We will also look for other opportunities as once high-flying stocks with superior EPS growth prospects have their expectations reset but offer favorable risk to reward entry points. As we continue to get ready for today’s trading, we have no major economic data releases coming, but we do have a few Fed speakers making the rounds today. These will be some of the last few as the Fed moves into its quiet period ahead of its July 30 to 31 policy meeting. While the likelihood of them saying anything groundbreaking today is low, we will review their comments, and share anything noteworthy with you.
At the time of publication, TheStreet Pro Portfolio was long CIBR and MSFT.
