Microsoft Roars To New High: ETFs To Tap The Strength

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Driven by the market optimism around the tech giant's artificial intelligence (AI) prospects, Microsoft (MSFT - Free Report) saw an astounding rally, reaching new highs. The surge has propelled Microsoft’s market capitalization to a record $2.59 trillion, making it the third mega-cap tech firm after Nvidia Corp. (NVDA) and Apple Inc. (AAPL) to scale new highs this year.

The software giant's stock has gained more than 45% in year to date, adding about $800.6 billion to its market value. Investors could tap the strength of this software leader through ETFs having double-digit exposure to Microsoft. These are Select Sector SPDR Technology ETF (XLK - Free Report), MSCI Information Technology Index ETF (FTEC - Free Report), iShares Global Tech ETF (IXN - Free Report), Vanguard Information Technology ETF (VGT - Free Report) and iShares Dow Jones US Technology ETF (IYW - Free Report).

Microsoft's success can largely be attributed to its leadership in the adoption of AI technology within the software industry. The company's hefty investment in OpenAI, a San Francisco-based startup that owns the widely popular AI chatbot ChatGPT, has played a pivotal role in setting Microsoft apart as a key player in the AI arena.

Last month, Microsoft commenced the rollout of a series of AI upgrades, including the integration of ChatGPT into its Azure cloud services and the Bing search engine. This move is seen as a strategic challenge to the dominance of Google, further reinforcing Microsoft's commitment to AI and its implications for the future of technology.

Moreover, Microsoft is planning to revamp its entire suite of Office applications, such as Excel, PowerPoint, Outlook, and Word, with OpenAI technology. The company's AI-focused trajectory has prompted JPMorgan analysts to increase their price target on the Microsoft stock.

As the market continues to recognize the potential of AI, Microsoft's strategic investments and innovations in this sphere position it at the forefront of this technological revolution. With the ongoing rollout of AI upgrades and the market's growing confidence in AI's transformative potential, Microsoft's shares may continue to soar in the foreseeable future.


Solid Microsoft Fundamentals 

Microsoft saw solid earnings estimate revision of 34 cents for the fiscal year (ending June 2023) and 23 cents for the next fiscal year (ending June 2024) over the past 60 days. This represents year-over-year growth of 4.7% and 11.7%, respectively. Revenues are expected to grow 6.5% and 10.3%, respectively, for the current fiscal and the next. Further, Microsoft currently carries a Zacks Rank #3 (Hold) and has a Growth Score of B, suggesting that it is primed for more growth.


ETFs in Focus

Select Sector SPDR Technology ETF (XLK)

Select Sector SPDR Technology ETF is the most popular and liquid ETF in the technology space, with AUM of $49 billion and an average daily volume of 6 million shares. It offers broad exposure to the technology sector and follows the Technology Select Sector Index. Select Sector SPDR Technology ETF holds about 64 securities in its basket, with Microsoft occupying the top position at 24.1%.

Select Sector SPDR Technology ETF charges 10 bps in fees per year from investors and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

MSCI Information Technology Index ETF (FTEC)

MSCI Information Technology Index ETF is home to 359 technology stocks with AUM of $7 billion. It follows the MSCI USA IMI Information Technology Index. Microsoft is the second firm with a 19.1% allocation.

MSCI Information Technology Index ETF has 0.08% in expense ratio, while volume is solid at 217,000 shares a day. It carries a Zacks ETF Rank #2 with a Medium risk outlook.

iShares Global Tech ETF (IXN)

iShares Global Tech ETF provides exposure to electronics, computer software and hardware, and informational technology companies by tracking the S&P Global 1200 Information Technology 4.5/22.5/45 Capped Index. Holding 113 stocks in its basket, Microsoft occupies the second spot with a 20% share.

iShares Global Tech ETF has amassed $3.6 billion in its asset base and trades in a good volume of 176,000 shares a day, on average. The expense ratio is 0.40%.

Vanguard Information Technology ETF (VGT)

Vanguard Information Technology ETF manages about $52.8 billion in its asset base and provides exposure to 325 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT occupies the second position with a 21.1% share.

Vanguard Information Technology ETF has 0.10% in expense ratio, while volume is solid at nearly 453,000 shares. It has a Zacks ETF Rank #2 with a Medium risk outlook.

iShares U.S. Technology ETF (IYW)

iShares U.S. Technology ETF provides exposure to U.S. electronics, computer software and hardware, and informational technology companies. It tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, holding 139 securities in its basket. Of these, Microsoft occupies the second position in the basket, with 17% of the assets.

iShares Dow Jones US Technology ETF has AUM of $12.5 billion and charges 39 bps in fees and expenses. Volume is good as it exchanges nearly 508,000 shares a day. IYW has a Zacks ETF Rank #2 with a Medium risk outlook.


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