Major stock indexes retreated in late January due to concerns about the Wuhan coronavirus outbreak, but many tech stocks are still hovering near their all-time highs. Investors might be waiting for a steeper pullback, but a trio of high-quality tech stocks Baidu (NASDAQ:BIDU), Microsoft (NASDAQ:MSFT), and Sony (NYSE:SNE) — could be worth buying in February, even without a potential pullback brought on by a market retreat.
1. Baidu is bottoming out
Baidu, which owns China’s largest search engine and third-largest digital advertising business, lost nearly 30% of its market value over the past 12 months as its core advertising business hit a brick wall. Tough competition from Gen Z-oriented rivals such as ByteDance and the sluggish Chinese economy caused its ad revenue to slide year over year over the past two quarters.
Baidu relied on the growth of streaming video platform iQiyi (NASDAQ:IQ) to offset that slowdown, but the unit’s losses throttled its earnings growth. Baidu exacerbated that pressure by ramping up its spending on the expansion of its ecosystem beyond PCs and mobile devices.
However, Baidu recently raised the midpoint of its fourth-quarter guidance from 2.6% annual growth to 5.1% growth. It now expects Baidu Core’s revenue to rise 4% to 6% annually, compared to its prior forecast for 0% to 6% growth, and it expects the midpoint of its non-GAAP net income to nearly double, with 50% to 55% non-GAAP net income growth at its core businesses.
That forecast indicates that brighter days are ahead and that the expansion of its ecosystem via speakers, voice searches, and mini-programs on its mobile app is paying off. Baidu also allayed some concerns about the coronavirus, noting that its employees would work from home in an extended Chinese New Year holiday and that it would delay its earnings release to Feb. 27.
Baidu still faces an uphill battle in 2020, but its stock is historically cheap at 17 times forward earnings and could rally after its earnings report.
2. Microsoft is firing on all cylinders
Microsoft’s stock already rallied nearly 70% over the past 12 months, but its recent second-quarter report suggests that momentum will continue throughout 2020.
The tech giant’s total revenue rose 14% annually during the quarter as its non-GAAP net income surged 36%. The main catalyst was a 39% jump in commercial cloud revenue, which hit $12.5 billion and accounted for 38% of its top line.
Much of that growth came from its cloud platform, Azure, which generated 64% constant currency revenue growth during the quarter and accelerated from its 63% growth in the first quarter. The unit’s other growth engines, Office 365 Commercial and Dynamics 365, generated 30% and 45% growth, respectively.
The growth of Microsoft’s cloud business complemented the growth of its Windows OEM, Surface, and LinkedIn businesses, which all offset the slower growth of its gaming unit ahead of the launch of the Xbox Series X later this year.
Microsoft is firing on all cylinders, and analysts expect its revenue and earnings to rise 13% and 20%, respectively, this year. Investors are paying a slight premium for the stock at 27 times forward earnings, but the growth of its cloud business, the strength of its software and hardware segments, and…
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