Intel, Microsoft Keep the Dow in the Green

Intel rockets up after a big increase in its outlook, but investors need to keep an eye on the long term.

Jun 13, 2014 at 2:30PM
Daily Fool

The market has managed to reverse its recent losing streak today, with the Dow Jones Industrial Average (DJINDICES:^DJI)gaining a moderate 31 points as of 2:30 p.m. and looking to end the week on a positive note. While most of the 30 blue-chip stocks aren't moving much today, chipmaker Intel (NASDAQ:INTC) has absolutely blown up for shareholders in gaining more than 6.7%. Meanwhile, tech peer Microsoft (NASDAQ:MSFT) was up 1.8%. Let's catch up on what you need to know.

Consumer sentiment on the downswing
Despite today's gains, the economy began the day on a downbeat note. Thomson Reuters and the University of Michigan showed consumer sentiment in the U.S. fell to a three-month low this month, declining below economist expectations. Economists believe that consumption will pick up and help the economy grow throughout 2014, but today's report paints a picture of consumers still worried about slow income growth in the U.S. as the labor picture remains murky. While retail sales did rise in May, it'll take prolonged growth in consumer confidence to keep the foundation of America's GDP growing.

Images

Source: Wikimedia Commons

That hasn't hurt shares of Intel today, however. The chipmaker has been hounded in the recent past by concerns over its reliance on the declining PC market, but the company showed much more optimism in its future late yesterday by raising its outlook. Intel bumped up its second-quarter revenue forecast from $13 billion to $13.7 billion while noting that 2014 should mark the company's first year of revenue growth since 2011. Intel sees its gross margin benefiting in 2014 as well.

Why the optimism? Intel sees demand for business PCs picking up this year as offices upgrade infrastructure, giving a shot in the arm to the company's struggling revenue. Businesses still rely more on PCs than consumers, who have shifted toward mobile devices in tablets and smartphones and away from the PCs that Intel relies on for business. Still, it's best for investors to be cautious before buying into Intel's updated hopes and the stock's surge. Businesses upgrading hardware will last for a short time, and once that trend has finished, it's questionable whether Intel can maintain any momentum in its PC group. Intel must continue to broaden its horizons and plan for the long term; otherwise, today's optimism will be short-lived.

Much of Microsoft's surge today likely also comes from the business upgrade cycle. The software giant's ending of Windows XP support means that companies and organizations will need to pivot toward new operating systems and software to complement the replacement of existing hardware. Still, like Intel, Microsoft must make the most of its efforts to expand beyond its traditional software niche, even as software continues to perform well at the company. The company's foray into mobile with its acquisition of Nokia's (NYSE:NOK) device and services branch offers a big, yet murky, opportunity to make a serious statement about its direction. if Microsoft can carve out a slice of the mobile market, it'll be in a great position to thrive.

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Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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