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Microsoft (NASDAQ: MSFT) had a tough year in 2022 as its impressive growth slowed down. After hitting a record high of $355 in January 2022, the stock dropped to a low of $220 later in the year. It started 2023 trading at $240, giving it a market cap of over $1.79 trillion. Despite the recent struggles, Microsoft has been a strong performer over the past five years, with a 171% increase in its stock price. The company has also been generous with dividends and share buybacks.
In 2020, Microsoft fared better even with the strong US dollar impacting its international business. Revenue in the first quarter reached $49.36 billion, followed by $51 billion in the second quarter and $50.12 billion in the third quarter. The company’s focus on corporate clients and high demand for cloud computing services helped drive this performance.
The decline in Microsoft’s stock price can be attributed to three main factors. First, technology stocks faced a significant reset. For over a decade, tech companies thrived with low-interest rates, which were kept historically low since the Global Financial Crisis. However, in 2022, the Federal Reserve raised interest rates by 450 basis points and hinted at more increases for 2023. Tech stocks usually struggle during periods of high interest rates.
Second, the strong US dollar contributed to the drop in Microsoft’s share price. The dollar index surged to its highest level in over twenty years in 2022. As a global company with major operations in Europe and Japan, Microsoft’s revenue from these regions suffered due to the weakening of their currencies against the USD.
Third, concerns about the $68 billion merger with Activision Blizzard also weighed on Microsoft’s stock. Some investors questioned whether the hefty price tag was justified, especially given the mixed results of recent acquisitions by other companies. For instance, Carvana’s acquisition of Adesa put the company at risk of bankruptcy, and Teladoc’s purchase of Livongo Health didn’t pay off as hoped. Additionally, regulators’ lawsuits to block the deal were seen by some as a positive move, with critics suggesting Microsoft should use the funds for stock buybacks or special dividends instead.
Looking at the weekly chart, Microsoft’s stock has been in a bearish trend recently, forming a falling channel pattern similar to a falling wedge. It has also dipped below the 25-day and 50-day moving averages. Given this trend, I anticipate a potential bullish breakout for Microsoft shares in 2023, aligning with my recent forecast for the stock.