The Dow Rises on Tech Strength, But Does Microsoft Deserve its Intel Boost?

Strength from an unexpected corner of the market lifted the Dow, but some wonder whether tech stocks really should be rising in unison.

Jun 13, 2014 at 11:00AM
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The Dow Jones Industrials (DJINDICES:^DJI) has had a rough week, but the index climbed out of its tailspin today to climb 38 points as of 11 a.m. EDT. Many of the same worries still weighed on the market, including the deteriorating situation in Iraq and whether the broader global economy can continue to track upward. Yet in the U.S., bullish calls from Intel (NASDAQ:INTC) dominated investor attention, and the favorable news lifted tech peer Microsoft (NASDAQ:MSFT) as well. As interconnected as those two juggernauts have been for decades, though, does Intel's call really justify Microsoft's gains? Let's see.

Msft

Wintel no more?
Intel soared more than 6% after raising its guidance for the current quarter, with a roughly 5% boost in expected revenue and an increase of a full percentage point in the chipmaker's gross margin guidance. Surprisingly, Intel's strength came primarily from good news on the PC front, as the company said businesses were upgrading older personal computers to a greater extent than expected. The rebound came after a long period of weakness in PC shipment volume that had pushed Intel toward taking dramatic steps to enter the mobile market more forcefully and look for alternatives to its legacy PC business.

Microsoft jumped 2% this morning as well, as Intel's Dow-component peer took the news as a sign that the maker of PC office-productivity and operating-system software could see better than expected results from the division as well. Indeed, Microsoft's decision to stop providing support for the older Windows XP operating system in April likely spurred many businesses to buy replacement PCs. For many customers, computers are cheap enough that upgrading an existing machine with newer operating-system software isn't worth the effort.

Intc

Source: Intel.

But the bigger question facing investors in the Dow Jones Industrials this morning is whether Microsoft and Intel should really be tied at the hip any longer. Both companies are looking at going beyond their traditional Wintel partnership, with Microsoft seeking to emphasize cloud-based software offerings and move aggressively into the mobile space. Intel has done even more work toward diversifying its approach, making chip advances that are designed to go into a wide variety of mobile devices and potentially opening its state-of-the-art foundries to third-party use.

Obviously Intel and Microsoft still have a lot in common, and they'll rely on their respective cash-cow PC businesses well into the future. But in the long run, Dow investors should expect their shares not to trade so much in lockstep as they have in the past.

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Dan Caplinger 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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