ETFs to Buy as Cloud, AI Power Microsoft's Q3 Earnings

The world's largest software maker — Microsoft MSFT — reported strong third-quarter fiscal 2024 results, beating earnings and revenue estimates. driven by strong demand for cloud and artificial intelligence offerings.
Buoyed by robust results, shares of MSFT jumped as much as 5% in after-market hours. Investors could tap the opportune moment in this software leader through ETFs having double-digit exposure to Microsoft. These are Select Sector SPDR Technology ETF XLK, MSCI Information Technology Index ETF FTEC, iShares Global Tech ETF IXN, Vanguard Information Technology ETF VGT and iShares Dow Jones US Technology ETF IYW.

Earnings in Focus

Earnings per share came in at $2.94, beating the Zacks Consensus Estimate of $2.81 and were 20% higher than the year-ago earnings. Revenues grew 17% year over year to $61.9 billion, edging past the consensus estimate of $60.63 billion.
Intelligent Cloud revenues jumped 21% year over year. Sales of Office 365 Commercial and Dynamic 365 climbed 15% and 23%, respectively. Sales of the flagship Azure computing platform grew 31% year over year.
The software maker invested billions of dollars into AI in a bid to turbocharge its growth, particularly its cloud computing services, and is now reaping the fruits. About 7% of the increase in Azure revenues came from AI. Microsoft CEO Satya Nadella said on a call that 65% of Fortune 500 companies are using the Azure service that delivers OpenAI's technology to businesses. Demand for generative AI will continue to fuel Microsoft's cloud business.
Microsoft is now emphasizing AI transformation through its new offerings like Microsoft Copilot. "Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry" Nadella said.
Microsoft expects revenues of $63.5-$64.5 billion for fiscal fourth-quarter 2024. The Zacks Consensus Estimate is pegged at $64.49 billion.

ETFs in Focus

Select Sector SPDR Technology ETF XLK
Select Sector SPDR Technology ETF is the most popular and liquid ETF in the technology space, with AUM of $61.8 billion and an average daily volume of 7 million shares. It offers broad exposure to the technology sector and follows the Technology Select Sector Index. Select Sector SPDR Technology ETF holds about 65 securities in its basket, with Microsoft occupying the top position at 23.5%.
Select Sector SPDR Technology ETF charges 9 bps in fees per year from investors and has a Zacks ETF Rank #1 with a Medium risk outlook.
MSCI Information Technology Index ETF (FTEC)
MSCI Information Technology Index ETF is home to 303 technology stocks with AUM of $9.1 billion. It follows the MSCI USA IMI Information Technology Index. Microsoft is the top firm with an 18.3% allocation.
MSCI Information Technology Index ETF has 0.08% in expense ratio, while volume is solid at 253,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook.
iShares Global Tech ETF IXN
iShares Global Tech ETF provides exposure to electronics, computer software and hardware, and informational technology companies by tracking the S&P Global 1200 Information Technology 4.5/22.5/45 Capped Index. Holding 117 stocks in its basket, Microsoft occupies the top spot with a 20.1% share.
iShares Global Tech ETF has amassed $4.2 billion in its asset base and trades in a good volume of 223,000 shares a day, on average. The expense ratio is 0.41%.
Vanguard Information Technology ETF VGT
Vanguard Information Technology ETF manages about $61.3 billion in its asset base and provides exposure to 313 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT occupies the top position with an 18.3% share.
Vanguard Information Technology ETF has an expense ratio of 0.10%, while volume is solid at nearly 434,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook.
iShares U.S. Technology ETF IYW
iShares U.S. Technology ETF provides exposure to U.S. electronics, computer software and hardware, and informational technology companies. It tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, holding 131 securities in its basket. Of these, Microsoft occupies the top position in the basket, with 18.6% of the assets.
iShares Dow Jones US Technology ETF has AUM of $15.8 billion and charges 40 bps in fees and expenses. Volume is good as it exchanges nearly 909,000 shares a day. IYW has a Zacks ETF Rank #1 with a Medium risk outlook.

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