Microsoft Stock Earnings Preview: A miss could send MSFT on path to $200

• Microsoft reports earnings after the close on Tuesday, October 25. 
• Wall Street expects $2.31 EPS and $49.7 billion in sales.
• MSFT has received more than 30 downward revisions for this quarter on both EPS and revenue.

Microsoft (MSFT) needs to beat earnings consensus this time around or else it is heading to $200. The trillion-dollar company reports fiscal first quarter 2023 earnings on Tuesday after the market closes. Wall Street has it pinned at adjusted earnings per share of $2.31 on sales of $49.7 billion.

Microsoft stock earnings news

The market will first and foremost be looking for updates on the proposed acquisition of Activision Blizzard (ATVI). Microsoft agreed to buy the videogame developer for $68.7 billion or $95 a share, but ATVI stock remains listlessly rolling around the lower $70s. Despite the fact that Microsoft would become the premier vertically-integrated videogame company once Activision is paired with its XBox console business, a sizeable segment of the market is utterly convinced that the Federal Trade Commission will eventually axe the deal over antitrust worries. The UK's Competition & Markets Authority has also been scrutinizing the deal. 

A separate worry for investors will be the recent research report from NPD Group saying that videogame sales declined YoY in September for the 11th straight month in a row. September sales of $4.073 billion were off 4% from the year-ago figure. An interesting detail is that while content is down 9% this year and accessories have receded 13%, hardware revenue is off just 1%. Does this bode ill for the Activision deal?

The Information reported recently that Microsoft execs are in final discussions on a new funding round for OpenAI. Microsoft invested $1 billion in the startup back in 2019, and non-public sales in 2021 are said to have valued it at $20 billion. The company is one of the more advanced artificial intelligence firms in Silicon Valley and was founded in 2015 by Sam Altman and Elon Musk. 

Two weeks ago Hedgeye called MSFT a new short idea. "We see more than 20% downside risk for MSFT as the company enters the estimate discovery process," a hedge analyst wrote. Likewise, analyst estimates for this quarter's EPS and revenue figures have been revised lower more than 30 times each in the past 90 days.

However, more than 60% of Wall Street analysts still list the stock as a Strong Buy, and Microsoft has beaten its earnings consensus in seven out of the past eight quarters.

Microsoft stock forecast

 Microsoft stock has been following a lower trendline down since January. Consistently, each successive lower low has respected this trendline. The outlook for the earnings trade seems simple. A miss will send shares down to the lower trendline at $210. If the move lower takes weeks to play out, however, then it will likely bottom out closer to $200. Both $210 and $200 have a history. Throughout 2020 MSFT shares used these levels as support as the market moved higher on multiple occasions. Just below $200 is another support level at $196-$197 from September of 2020.

A beat will send MSFT shares above the early October swing high resistance point at $250.34. A major earnings beat would likely have bulls yearning for the $267.40 level as well. Resistance will likely come in at the 50-day moving average near $252.50 and the 200-day moving average at $274.40.

MSFT daily chart