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Dow Jones Sinks as Apple Stock Gets a Price Target Bump, Microsoft Considers a Gaming Acquisition

By Timothy Green – Updated Jul 7, 2020 at 11:45AM

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Analysts are optimistic about Apple's post-pandemic performance, and Microsoft is reportedly interested in shelling out $4 billion to expand its gaming business.

The Dow Jones Industrial Average (^DJI 0.17%) was down 0.6% at 11 a.m. EDT on Tuesday as the pandemic remained out of control in many parts of the United States. Reuters reported that United Airlines had warned in an internal presentation to employees that travel restrictions by states in the Northeast have led to booking declines and could require furloughs. More states may take action if the situation worsens in the hardest-hit areas.

While the Dow was slumping this morning, shares of Apple (AAPL 0.40%) and Microsoft (MSFT 0.46%) were rallying. Apple stock rose after an analyst price-target bump, while Microsoft stock headed higher as the company considers acquiring a multibillion-dollar gaming unit.

A Wall Street street sign.

Image source: Getty Images.

Apple scores price target bump despite pandemic headwinds

Apple will report results for its fiscal third quarter, which spans April through June, on July 30. The tech giant didn't issue any guidance due to the uncertainty surrounding the pandemic, but it's safe to say that revenue and earnings will take a significant hit. Apple managed to grow revenue slightly in the fiscal second quarter, but that period was largely normal until stay-at-home orders began to be issued toward the end of March.

Analysts at Raymond James expect the pandemic to affect Apple's guidance for the fiscal fourth quarter, but the investment bank raised its price target on the stock nonetheless. Raymond James now has a $400 price target on Apple, up from a previous target of $340.

While the rest of Apple's fiscal year will be tough, Raymond James believes investors will focus on expectations for fiscal 2021. Apple is expected to launch a slate of 5G-enabled iPhones later this year, which have the potential to drive a meaningful upgrade cycle. The pandemic's negative impact on demand for Apple's products may also have waned by then, but that's certainly not a given.

The company will be launching its new iPhones into what will likely be a rough economy and spending environment. How eager consumers will be to open their wallets for new iPhones is up in the air. Apple is also facing some delays in producing the devices, so it's possible the phones will launch later than expected.

Apple stock was up 1.1% on Tuesday morning. Shares now sit just below their 52-week high.

Microsoft could buy gaming business from Warner Bros.

The Information reported on Monday that Microsoft is interested in buying the gaming unit of Warner Bros. Telecom giant AT&T, owner of Warner Bros. and saddled with debt from its years-long acquisition spree, is looking to pay down that debt by selling non-key assets.

Games released by the Warner Bros. gaming unit include Harry Potter: Wizards Unite, Mortal Kombat 11, various LEGO games, and games featuring Batman. CNBC reported last month that AT&T is looking to raise around $4 billion from the sale.

Microsoft is set to launch its Xbox Series X game console later this year. The company's current game console, the Xbox One, fell far short of Sony's PlayStation 4 in terms of sales. Nearly 112 million PS4 consoles have been sold worldwide since launch, compared with just 48 million for the Xbox One, according to VGChartz.

By acquiring the Warner Bros. gaming unit, Microsoft would bolster its game-making ability and potentially have more exclusives for its own console. That may be especially important this year, given that demand for new game consoles could be depressed due to a weak economy.

Microsoft stock was up 1.7% this morning. Like Apple, Microsoft is trading right around its 52-week high.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Timothy Green owns shares of AT&T. The Motley Fool owns shares of and recommends Apple and Microsoft and recommends the following options: short January 2021 $115 calls on Microsoft and long January 2021 $85 calls on Microsoft. The Motley Fool has a disclosure policy.

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