Cloud software propels tech stocks higher ahead of big week for earnings


Cloud-software stocks led a tech rally Monday as analysts anticipated a strong showing from Microsoft Corp. and other tech companies set to report earnings amid a pandemic that has shifted many businesses to remote work.

The First Trust Cloud Computing ETF
SKYY,
+3.45%
rallied 3.3% Monday, while the iShares Expanded Tech-Software Sector ETF
IGV,
+3.10%
surged 2.9%. Software was the clear driver of tech stocks as the Nasdaq Composite Index
COMP,
+1.68%
rose 1.6%, while the PHLX Semiconductor Index
SOX,
+0.77%
gained only 0.9%. In comparison, the S&P 500 index
SPX,
+0.47%
advanced 0.4%, and the Dow Jones Industrial Average
DJIA,
-0.07%
declined 0.2%.

Microsoft
MSFT,
+3.01%
shares were last up 2.6% at $208.08 ahead of its scheduled earnings report on Wednesday afternoon. The stock is up 32% for the year, while the Nasdaq is up 18%.

Raymond James analyst Robert Majek, who has a strong buy on the stock and raised his price target to $225 from $208, said he expects Microsoft’s quarter to be “driven by the three-headed Hydra in Azure, O365 and gaming, which have all held up well in today’s remote economy and now nearly represent 50% of the company’s revenue.”

See also: Tech has been a pandemic savior for the market and has been richly rewarded. So what happens now?

Stifel analyst Brad Reback, who has a buy rating and hiked his price target to $215 from $200, also said that Microsoft stands to benefit from its presence in hyperscale/hybrid cloud, Software-as-a-Service apps, security and gaming as the COVID-19 pandemic continues. The U.S. death toll from COVID-19 rose above 140,000 as infections surged particularly in hot spots like Florida.

“As the COVID dust settles in coming quarters, we expect organizations of all sizes to sustain accelerated cloud migration strategies and that Microsoft should be a key beneficiary as it taps into Tier-1 workloads that were previously out of reach,” Reback said.

Analysts are excited about software names beyond Microsoft. Shares of Dropbox Inc.
DBX,
+9.33%
surged more than 8% after Jefferies analyst Brent Thill hiked his rating on the stock to a buy, in that the company benefits from work-at-home trends and trades at a discount to peers.

Full earnings preview: S&P 500 earnings set to plunge as the coronavirus batters all sectors

Thill also raised his price target on Atlassian Corp.
TEAM,
+8.18%
to $175, calling the stock a “fundamental rock star with rich valuation.” Atlassian shares were last up 8% at $186.53.

“Atlassian is one of the few companies that benefits in the current environment. We will expect an update on what adoption TEAM is seeing in the current remote work environment and whether that is sustainable should things return to normal post COVID-19,” Thill said.

Other big software gainers Monday included Adobe Inc.
ADBE,
+4.86%
with a 4.8% gain, ServiceNow Inc.
NOW,
+5.51%
with a 5.4% gain, Zendesk Inc.
ZEN,
+6.63%
up 6.1%, Everbridge Inc.
EVBG,
+8.23%
up 9%, Zscaler Inc.
ZS,
+6.13%
up 5.2%, and Palo Alto Networks Inc.
PANW,
+4.11%
up 4.1%.



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