Had Enough PHUN with D'WAC Trades?

Had Enough PHUN with D’WAC Trades? Buy Microsoft Options

The Phun is not over when it comes to meme stocks, including the recent Trump-related trades of Phunware PHUN and Digital World Acquisition DWAC. Last week, I said to buy the latter, and even though it is down now, another push on the news (Trump attracts news like no one in history), is bound to occur even if no such acquisition materializes and he somehow does not make good on the promise to “Make SPACs Great Again,” as investors and believers hope. If you are going to stick it out with Trump stocks, buy the warrants over the shares in DWAC.

The warrants, which trade under the symbol DWAC, are still trading at over $26 per share as of Wednesday midday. If you subtract the exercise price of $11.50 from the current stock price of around $60 per share—to calculate their intrinsic value—you have an intrinsic value of $48.50 per warrant. If you really believe that a deal will be made and the warrants will be exercisable, then bet on those over shares of DWAC.

And/or you could just bet on Microsoft MSFT, a stock I have been betting on and championing since I have been writing consistently about stocks. I recently bought options expiring in April at a very safe $290 strike price at around $40 per contract. Such a long options call allows for the potential of a market slowdown over the next few months as we head out of earnings season and into a present-less Christmas.

The company crushed expectations on Tuesday when it reported its fiscal Q1 2022 earnings. Cloud revenue jumped 36% year-over-year, leading Wedbush analyst Dan Ives to say on Yahoo Finance Live that there is “…more fuel in the engine to drive this stock higher.”

How far can Microsoft go? Well, the sky's the limit when it comes to the corporate cloud space it is dominating, a space that is still in its infancy. The price target for Ives is $400 per share, which for a stock that has jumped over 40% year-to-date still offers a significant upside from its current Wednesday price of $324 per share.

Shareholders in Microsoft are no doubt on Cloud Nine, and some selling from its recent highs is to be expected. But when looking at the company’s cloud play alone, it is now second in terms of cloud market share behind Amazon AMZN, and ahead of Google GOOG GOOGL and IBM IBM. For the quarter, Microsoft’s cloud services generated $20.7 billion in revenue.

Also worth mentioning is that the company’s gaming revenue has been hurt by the chip shortage, a shortage that is temporary. However, its PC sales are doing well. Launching its new Windows 11 operating system on Oct. 5, the company’s More Personal Computing segment grew 15% year-over-year. While the chip shortage may affect that going forward (as chips for computers become more scarce and more expensive for computers), this should be a temporary setback should it occur.

In the end, though, it's really all about the cloud.

“This is a $2 trillion market that’s still in the third inning of playing out,” Ives said. “On a cloud transformation I think that’s how you get a stock with a four in front of it.”

A 30% return over the mid-term on a stock that could not be a safer long-term bet? How Phun would that be?