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Buy Microsoft Corporation (MSFT) on Short Term Weakness

Despite IBM’s attempt at shifting its operations to software and services. The company is having difficulty identifying scalable opportunities in the space. There is still pent-up growth potential, but all of that growth may not necessarily be realized by IBM. The company reported a 1% year-over-year decline on its revenues in the most recent quarter, which implies that IBM’s business is starting to stabilize. The contribution from software and services is outweighing the losses from its systems and technology segment.

The video-gaming companies are likely to be hit in the current and next quarter. Short-term measures of performance indicate that there will be pent-up demand for gaming in the holiday season. However, companies like Electronic Arts Inc. (NASDAQ:EA) may not grow revenue by much in the second and third quarter of 2013. Analysts on a consensus basis anticipate the company to report a 7.6% decline in revenue for the current quarter, and a 9.5% decline for the next quarter. This is because the next generation consoles are expected to be released in the fourth quarter of 2013.

Electronic Arts Inc. (NASDAQ:EA) has a really strong lineup of games heading into the fourth quarter of 2013. Despite this fact, almost every major studio plans on a blockbuster title release for the fourth quarter of 2013. So competition will become fierce. Another negative for game studios are the strained budgets of video gamers, as they have already spent $400 to $500 on a console system. These factors have resulted in a more modest forecast, and as a result, analysts are anticipating the industry to grow by 17.8% for the full year.

Conclusion

Microsoft Corporation (NASDAQ:MSFT) had a tough earnings release. For the most part, the company’s performance fell because of weakening PC shipments along with weaknesses in its Windows business segment. Both Microsoft and Electronic Arts Inc. (NASDAQ:EA) are likely to exhibit some significant growth from gaming in the holiday season. I also anticipate demand for PCs to stabilize when support for Windows XP ends in the second quarter of 2014. On the system side of the server market, it seems that demand will continue to decline, but IBM is still able to recover because of its software and service offerings.

The article Buy Microsoft on Short Term Weakness originally appeared on Fool.com and is written by Alexander Cho.

Alexander Cho has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines (NYSE:IBM). and Microsoft. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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