Microsoft Tops $2 Trillion Market Cap: ETFs in Focus

Microsoft MSFT topped $2 trillion market cap for the first time at the close of the trading session on Jun 24. The company had hit the milestone on Jun 22 but pulled back at the close. This has made the world’s largest software maker the second U.S. company to reach this level after the technology giant Apple AAPL, which achieved the milestone in August 2020.

The stock has jumped more than 64{3a9e182fe41da4ec11ee3596d5aeb8604cbf6806e2ad0e1498384eba6cf2307e} since March 2020, when pandemic lockdowns started going into effect in the United States. The massive gains came at the back of the pandemic that has boosted the demand for Microsoft’s computers, gaming systems and cloud computing platform.

Inside The Future Growth Story

Microsoft is benefiting especially from its cloud platform Azure as the pandemic has accelerated technology adoption. The cloud business pulled in $48.36 billion last year, making it one of Microsoft’s most-profitable segments. Additionally, the booming PC market is fueling strong growth. After registering the biggest increase in decades last year, PC sales saw the fastest year-over-year growth in the last two decades for the first quarter of 2021 buoyed by strong demand from consumers working and studying remotely, according to Gartner (read: PC Sales See Best Growth in 2 Decades: Tech ETFs to Buy).

Microsoft Teams, a group chat app, is generating robust revenues for the company. Microsoft Teams reached 145 million daily active users at the end of Q1, nearly double the 75 million daily active users reported last year. This indicates continued demand for videoconferencing and collaboration solutions that support remote work.

Further, Microsoft launched it “next generation” operating system, Windows 11, the biggest upgrade in six years. Windows 11 focuses on a new user interface, a new Windows Store, and improvements to performance. The new software will let Android apps run on the Windows desktop for the first time. It will also let users configure multiple desktops for work, home and gaming, like on an Apple AAPL Mac.

Solid Fundamentals

Microsoft has seen raising earnings estimate revisions from $7.37 to $7.80 per share for the fiscal year (ending June 2021) over the past 90 days. This represents substantial year-over-year growth of 35.4{3a9e182fe41da4ec11ee3596d5aeb8604cbf6806e2ad0e1498384eba6cf2307e}. Revenues are expected to grow 16.1{3a9e182fe41da4ec11ee3596d5aeb8604cbf6806e2ad0e1498384eba6cf2307e}. The stock is cheap, trading at a P/E ratio of 34.02 compared to the industry average of 37.39.

Further, Microsoft currently carries a Zacks Rank #3 (Hold) and a Growth Score of A (see: all the Technology ETFs here).

ETFs to Buy

Given this, investors seeking to tap the bullishness in this software leader could consider the following ETFs. These funds have double-digit exposure to Microsoft and could be compelling choices.

Select Sector SPDR Technology ETF XLK

This most-popular technology ETF follows the Technology Select Sector Index and has $41.2 billion in AUM. The fund charges 12 bps in fees per year from investors and trades in heavy volume of around 6.9 million shares a day, on average. It holds about 74 securities in its basket, with Microsoft occupying the second position at 20.4{3a9e182fe41da4ec11ee3596d5aeb8604cbf6806e2ad0e1498384eba6cf2307e}. XLK has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Top Technology ETFs That Deserve a Spot in Your Portfolio).

iShares Dow Jones US Technology ETF IYW

This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 159 U.S. electronics, computer software and hardware, and informational technology companies. Of these, Microsoft occupies the second position in the basket with 17{3a9e182fe41da4ec11ee3596d5aeb8604cbf6806e2ad0e1498384eba6cf2307e} of the assets. The fund has AUM of $7.6 billion and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 337,000 shares a day. It has a Zacks ETF Rank #2 with a Medium risk outlook.

Vanguard Information Technology ETF VGT

This fund manages about $46.4 billion in its asset base and provides exposure to 357 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT occupies the second position with 16.3{3a9e182fe41da4ec11ee3596d5aeb8604cbf6806e2ad0e1498384eba6cf2307e} share. The ETF has 0.10{3a9e182fe41da4ec11ee3596d5aeb8604cbf6806e2ad0e1498384eba6cf2307e} in expense ratio, while volume is solid at nearly 433,000 shares. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: Tech ETFs Hit New Peaks Despite Hawkish Fed).

MSCI Information Technology Index ETF FTEC

This fund is home to 353 technology stocks with AUM of $5.8 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with a 16.2{3a9e182fe41da4ec11ee3596d5aeb8604cbf6806e2ad0e1498384eba6cf2307e} allocation. The ETF has 0.08{3a9e182fe41da4ec11ee3596d5aeb8604cbf6806e2ad0e1498384eba6cf2307e} in expense ratio, while volume is solid at 277,000 shares a day. It carries a Zacks ETF Rank #3 with a Medium risk outlook.

iShares Global Tech ETF IXN

This product provides exposure to electronics, computer software and hardware, and informational technology companies by tracking the S&P Global 1200 Information Technology Sector Index. Holding 128 stocks in its basket, Microsoft occupies the second spot with 16{3a9e182fe41da4ec11ee3596d5aeb8604cbf6806e2ad0e1498384eba6cf2307e} share. The ETF has amassed $4.4 billion in its asset base and trades in a good volume of 136,000 shares a day on average. Expense ratio is 0.46{3a9e182fe41da4ec11ee3596d5aeb8604cbf6806e2ad0e1498384eba6cf2307e}.

iShares Evolved U.S. Technology ETF IETC

This is an active ETF, having accumulated $105.6 million in its asset base. It employs data science techniques to provide exposure to 240 technology stocks. Microsoft is the top firm with 15.6{3a9e182fe41da4ec11ee3596d5aeb8604cbf6806e2ad0e1498384eba6cf2307e} allocation. IETC trades in a light volume of 16,000 shares and charges 18 bps in annual fees.

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Apple Inc. (AAPL): Free Stock Analysis Report

Microsoft Corporation (MSFT): Free Stock Analysis Report

Technology Select Sector SPDR ETF (XLK): ETF Research Reports

Fidelity MSCI Information Technology Index ETF (FTEC): ETF Research Reports

iShares U.S. Technology ETF (IYW): ETF Research Reports

Vanguard Information Technology ETF (VGT): ETF Research Reports

iShares Global Tech ETF (IXN): ETF Research Reports

iShares Evolved U.S. Technology ETF (IETC): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Ellen C. McGowan

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