An Algorithmic Analysis of Microsoft: Microsoft’s Stock Trend Analysis

Microsoft was founded in 1975 by Bill Gates and Paul Allen, and is now Windows Logoone of the most famous tech companys, mostly due to the Windows Operational System. Currently the company develops, licenses, markets, and supports software, services, and devices worldwide. The company’s Devices and Consumer (D&C) Licensing segment licenses Windows operating system and related software; Microsoft Office for consumers; and Windows Phone operating system. Its Computing and Gaming Hardware segment provides Xbox gaming and entertainment consoles and accessories, second-party and third-party video games, and Xbox Live subscriptions; surface devices and accessories; and Microsoft PC accessories.

Microsoft Stocks Price Plunged

As seen on the image below, Microsoft’s stock price went from $47.01 in January 26th, to $42.66 price on January 27th closing. This strong movement meant a 9.58% drop between that day and the previous.

MSFT stock

Source: Google Finance

The stock trend can be explained as a reaction of the shareholders to the 2QFY15 earnings results released  on January 26th, which revealed some poor results, and the following reviews the company got from financial analysts.

 On the Earnings Release, the company announced that revenue for the latest quarter was $26.5 billion, an increase of 8% year over year (YoY), in line with analysts’ estimate of $26.5 billion. Net income of $5.86 billion is reported with earnings per share (EPS) of 71 cents compared to $6.56 billion and EPS of 78 cents in the same quarter last year.

Although there was a significant revenue growth of 8% on a yearly basis, it was mainly on the back of Nokia’s phone business acquisition. The company also witnessed a fall in quarterly profits. Some other downsides faced by the company were:

  • Currency shifts: the USD fluctuation recently observed has affected Microsoft’s sales outside USA, since that even though 3 quarters of the sales are held outside America, they are still accounted for in US dollars.
  • Slump in the markets of China and Japan:  as users have transitioned from the traditional licensed programs to Internet-based programs, Microsoft’s software unit is hurt. That made licensing revenue declined to $10.7 billion in the quarter, compared to the analysts’ estimate of $10.9 billion.
  • Decline in Overall Sales of Personal Computers: this directly affects sales of Windows and Office software, which are usually sold together with new computers.

Algorithmic Analysis

I Know First is a financial services firm that utilizes an advanced self-learning algorithm to analyze, model and predict the stock market. The algorithm produces a forecast with a signal and a predictability indicator.  The signal is the number in the middle of the box. The predictability is the number at the bottom of the box.  At the top, a specific asset is identified. This format is consistent across all predictions.


The signal represents the predicted movement direction or trend, and is not a percentage or specific target price. The signal strength indicates how much the current price deviates from what the system considers an equilibrium or “fair” price. The signal can have a positive (predicted increase) or negative (predicted decline) sign. The heat map is arranged according to the signal strength with strongest up signals at the top, while down signals are at the bottom. The table colors are indicative of the signal. Green corresponds to the positive signal and red indicates a negative signal. A deeper color means a stronger signal and a lighter color equals a weaker signal.

The predictability indicator measures the importance of the signal. The predictability is the historical correlation between the prediction and the actual market movement for that particular asset, which is recalculated daily. Theoretically the predictability ranges from minus one to plus one. The higher this number is the more predictable the particular asset is. If you compare predictability for different time ranges, you’ll find that the longer time ranges have higher predictability. This means that longer-range signals are more important and tend to be more accurate.

Algorithm Prediction for Microsoft (MSFT)

The I Know Fisrt algorithm, released on January 11th had a negative signal for the Microsoft Stock, both on the 1-month period and the 3-months period. As seen on the tables below, the forecast had a -3.70 and a -0.28 signal strengths, with a predictability of -0.26 and -0.22 respectively.

MSFT Prediction

Also, as seen on the company’s stock price chart, on the beginning of the article, there was an actual strong negative trend on January 27th, confirming though the bearish predictions made by I Know First for this stock.