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Stock Market Today: Microsoft Jumps as Positive Earnings Push the Broad Market Higher

By Demitri Kalogeropoulos – Jul 20, 2016 at 5:15PM

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Find out why Microsoft and Intuitive Surgical led indexes higher on Wednesday.

Stocks traded higher through the entire session on Wednesday and finished the day with solid gains. The Dow Jones Industrial Average (^DJI 0.79%) added 36 points, or 0.2%, and the S&P 500 (^GSPC 0.86%) gained 9 points, or 0.4%. 

^SPX Chart

Data by YCharts

This earnings season continued to drive volatility among individual stocks. Microsoft (MSFT 0.81%) and Intuitive Surgical (ISRG 2.12%) were among the day's biggest movers following their earnings releases.

Microsoft doubles its Azure business

Microsoft led all Dow components with a 5% jump after announcing strong quarterly results to close out its 2016 fiscal year. The software giant's revenue rose 2% as healthy growth in its cloud segment more than offset the declining personal computing division. The resulting $22.6 billion of revenue beat consensus estimates that were calling for $22.1 billion. Profits also significantly outpaced targets, rising 11% year-over-year to $0.69 per share compared to the $0.57 per share that Wall Street was forecasting.

Image Source: Getty Images

The cloud division was a major bright spot in this report. In fact, Microsoft's cloud services spiked to a $12 billion business as its Azure revenue doubled, putting it right on track to meet management's $20 billion annual goal by fiscal 2018.

"Overall, the cloud is winning significant customer support," CEO Satya Nadella told investors in a conference call.

Microsoft issued a mixed forecast for the coming fiscal year. On the positive side, it sees its cloud profitability rising as capital expenditures slow in that division. Gross margin declines in other segments will offset those gains, though, so Nadella and his team are projecting a one percentage point drop in overall profitability. Investors chose to focus instead on Microsoft's brightening finances that included a 15% spike in free cash flow. In doing so, they pushed shares closer to the record high Microsoft last saw in late 1999.

Intuitive Surgical beats and raises

Robotic surgery device specialist Intuitive Surgical's stock jumped past $700 per share for the first time after it posted second quarter results. Revenue rose 14%, helped along by a double-digit increase in the volume of shipments of its da Vinci surgical platform. Intuitive Surgical delivered 130 da Vinci systems to clients, compared to 118 in the prior year.

Image Source: Getty Images

Profitability improved nicely, with gross margin rising to 72% of sales from 68%. A big factor in that boost was the fact that average selling prices for its products improved by $60,000 to pass $1.5 million. That expansion helped power a 35% spike in net income as net margin jumped to 27% of sales from 23% a year ago. The resulting $5.62 per share of profit beat consensus estimates by 13%.

"Our company performance was strong," CEO Gary Guthart said in a conference call with investors, "highlighted by sustained procedure growth across multiple geographies, improved margins, and continued customer preference of our new products."

Looking forward, executives are encouraged by the strong growth they see in the volume of procedures using its hardware. They now project those gains coming in at roughly 15% for the year, compared to the 13% they had targeted three months ago. Profitability forecasts also were hiked in this report, and it was that broadly improving operating outlook that convinced investors to send shares to a new high.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Intuitive Surgical. The Motley Fool owns shares of Microsoft. 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.

Stocks Mentioned

Microsoft Stock Quote
$246.35 (0.81%) $1.98
Intuitive Surgical Stock Quote
Intuitive Surgical
$273.65 (2.12%) $5.69
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$33,864.47 (0.79%) $265.34
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,967.71 (0.86%) $33.79

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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